Vikramjit Bhatt

In Canada, your minimum down payment for a home purchase is 5% of the property price, provided it's $500,000 or less. For example, for a $450,000 home, your down payment would be $22,500.

If your desired home exceeds $500,000, the rules change. For homes above $500,000 but below $1 million, you need 5% on the first $500,000, which is always $25,000, plus 10% of the remaining amount. For instance, if your house costs $850,000, your down payment would be $25,000 plus 10% of the extra $350,000, totaling $60,000.

For properties priced at $1 million or more, a minimum 20% down payment is mandatory.

Additionally, if your down payment falls between 5% and 20%, you're required to have default mortgage insurance, which is typically added to your mortgage amount. This insurance safeguards the lender. For example, with a $500,000 purchase and a 5% down payment, your mortgage amount becomes $494,000 after adding the 4% insurance premium.

While having a 20% down payment is ideal, most first-time homebuyers today opt for the minimum down payment to enter the housing market.

Saving for a down payment is a journey that demands discipline and commitment. Whether you're aiming for the minimum down payment, typically chosen by first-time homebuyers, or striving for the ideal 20% down, here are some strategies to help you achieve your goal:

1. Tax-Free First Home Savings Account (FHSA):

The FHSA is designed to assist future homebuyers in saving for their first home. Qualified first-time buyers can contribute up to $8,000 per year for five years, totaling $40,000 for an individual or $80,000 for a couple. Contributions are tax-deductible, similar to an RRSP, and withdrawals, including investment growth, are tax-free, akin to a TFSA. Unlike the RRSP Home Buyers' Plan (HBP), there's no repayment requirement. The FHSA can be used in conjunction with the HBP for the same home purchase.

2. Gift From Family:
If a family member is willing to gift you funds for your down payment, ensure they are a parent or a close relative, like grandparents. You'll need a signed gift letter confirming that the money is indeed a gift, not a loan.

3. RRSP Withdrawal (Tax-Free):

The Federal Home Buyers Program (HBP) allows first-time homebuyers to withdraw up to $35,000 tax-free from their RRSPs. To qualify, the money must have been inside the RRSP for at least 90 days. You can also contribute your existing down payment savings to your RRSP (up to $35,000) before the contribution deadline (usually March 1) to maximize your funds. You'll receive a tax refund that can further boost your down payment. Keep in mind, you'll need to repay the withdrawn funds according to a repayment plan, or you'll face income tax consequences. If you're purchasing a home with a partner who is also a qualifying first-time buyer, you can both use this program, potentially accessing a total of $70,000.

You can even transfer money from your RRSP to your FHSA, providing a tax-free RRSP withdrawal, although it won't grant you a tax deduction for the transfer. This transfer also doesn't affect your RRSP contribution room. If you don't end up buying a home, you can withdraw your money on a taxable basis or transfer your account balance to your RRSP, which increases your RRSP contribution room. These strategies can significantly boost your down payment savings and help you realize your dream of homeownership..

One of the pivotal decisions for homebuyers is whether to opt for a fixed or variable-rate mortgage. These options often feature distinct interest rate structures, and understanding the key differences is crucial.

Variable Rate:
In contrast, a variable-rate mortgage has an interest rate tied to your lender's Prime rate, which closely follows the Bank of Canada's overnight rate. This rate is expressed as "prime minus x percent." When the Bank of Canada adjusts its rate, your mortgage payment will likely reflect these changes. Variable-rate mortgages suit individuals with flexible budgets who can tolerate a degree of risk, as predicting future rate fluctuations can be challenging. Importantly, if circumstances change and you need to exit your mortgage, variable-rate mortgages typically incur lower penalties compared to fixed-rate ones. Variables offer the option to "lock in" a fixed rate with no penalties when the timing aligns with your preference.

Fixed Rate:
A fixed-rate mortgage offers unwavering certainty. You'll know precisely what your interest rate and monthly payment will be throughout the mortgage term, providing stability and peace of mind. This option is favored by those on tight budgets, first-time buyers, or individuals who haven't owned a home for an extended period. Fixed rates remain unaffected by fluctuating interest rates, allowing you to "set it and forget it."

The choice between fixed and variable rates depends on your specific financial goals and risk tolerance. A careful evaluation of your situation will unveil the optimal option. Additionally, you'll need to select your mortgage term, which dictates the duration of your mortgage commitment.

30-Year Amortizations: A Strategic Financial Move:
If your down payment is less than 20%, a 25-year amortization period is mandatory for your mortgage. However, if you have a down payment of 20% or more, you can choose a 30-year amortization. This extended period enables you to lower your mortgage payments, freeing up cash flow for various purposes like investments, business ventures, education expenses, maternity leave, home maintenance, or other life circumstances. You can maintain the flexibility of shorter amortization and only exercise this option when necessary. Having a mortgage that accommodates financial breathing room may justify the additional interest cost, and I can assist you in determining if this aligns with your financial strategy.

When finalizing your mortgage arrangement, you'll be tasked with choosing a payment option that aligns with your financial strategy. Your choice will dictate the frequency and amount of your payments. There are five distinct payment options to consider:

Weekly Payment: Similar to the bi-weekly option, your monthly payment is multiplied by 12 months and divided by the 52 weeks in a year, resulting in 52 payments annually.

Accelerated Weekly Payment: Your monthly mortgage payment is divided by four, and the resulting amount is withdrawn from your bank account every week. This approach still leads to 52 payments per year, with a slightly higher amount than regular weekly payments.

Bi-Weekly Payment: Your monthly mortgage payment is multiplied by 12 and then divided by the 26 pay periods in a year. This results in 26 payments annually.

Accelerated Bi-Weekly Payment: Your monthly mortgage payment is halved, and this amount is withdrawn from your bank account every two weeks. Although you still make 26 payments per year, the payment amount is slightly higher compared to regular bi-weekly payments.

Monthly Payment: This involves having your mortgage payment withdrawn from your bank account on the same day each month, typically the 1st. With this option, you make 12 payments annually.

Paying Off Your Mortgage Faster: Beyond selecting accelerated payments to expedite mortgage repayment, you can leverage prepayment options, which include lump sum payments and increasing your regular mortgage payment. Your mortgage contract will outline the maximum annual prepayment amount you can make.

Distinguishing Between Regular and Accelerated Payments: Opting for an accelerated payment schedule entails making approximately one additional payment annually. While it may slightly increase your monthly expenses, it can save you thousands in interest and hasten your mortgage payoff. It's a valuable choice for those seeking faster mortgage clearance. However, it's essential to evaluate your cash flow and desired lifestyle during mortgage repayment. If accelerated payments strain your budget, it might not be the ideal choice for your financial situation.

Maintaining good credit is paramount for achieving long-term financial success and should be a primary consideration in your financial planning. To secure the lowest mortgage rates, you must demonstrate responsible borrowing behavior and a commitment to making timely mortgage payments. Lenders assess your credit habits, including your bill payment history and credit card usage. These behaviors contribute to your credit rating, and to even establish a credit rating, you need two revolving credit sources, such as two credit cards or a credit card and a line of credit, each with a minimum two-year history.

This crucial aspect of your mortgage negotiation is entirely under your control. By cultivating good credit habits starting now, you can rapidly enhance your credit rating. Here's what matters most:

Collection Accounts: Prevent any bill from going to collections, even if it's a small or disputed amount. These negative marks on your credit report can be challenging to remove. If such an incident occurs, be prepared to provide an explanation, settle the debt in full, and ensure it's reported to credit bureaus.

Past Bankruptcy or Consumer Proposal: If you've previously filed for bankruptcy or entered a consumer proposal, you'll face additional challenges. You must be discharged for a minimum of two years and demonstrate the re-establishment of credit through at least two revolving credit accounts with a two-year history of satisfactory repayment. A strong income and down payment can enhance your eligibility. Specialized lenders are available for such situations.

Credit Card Utilization: Adhere to the 50% rule when using credit cards. If your limit is $7,000, avoid exceeding a $3,500 balance.

Credit Applications: Be cautious about applying for credit frequently. Resist the temptation to apply for store credit cards when prompted with purchase discounts, as this can negatively impact your credit.

Timely Bill Payments: Consistently paying every bill on time is the most significant game-changer. Commit to never allowing a bill to go past its due date.

If you're looking to improve your credit standing, don't hesitate to reach out for a comprehensive review of your circumstances and actionable recommendations to boost your credit rating.

I've meticulously refined the mortgage process to ensure a smooth and stress-free experience for you. Here's a concise overview:

Application: In this initial phase, we'll get to know each other. We'll discuss your unique situation, goals, and the best strategies to achieve them. Any questions you have will be answered comprehensively. Once we're ready, I'll assist you in completing your mortgage application, accommodating your preference - whether it's online, over the phone, or in person.

Review: After receiving your mortgage application, I'll conduct a thorough review, leaving no detail unchecked. I'll inform you about the necessary documentation you'll need to gather to secure your financing (for more information, refer to pages 11 and 12). Once I have all the required documents, I'll recommend the most suitable lender and mortgage product tailored to your needs.

Submission: Your application will be submitted to the chosen lender. Upon the lender's review and approval of your mortgage, we'll examine the approval closely together. This step is essential for addressing any lender-specific conditions and ensuring their satisfaction.

Disbursal: Roughly a week before your mortgage closing date, you'll meet with your lawyer. Once all the lender's conditions are met, they will proceed to register the documents on title, transfer the funds, and the property officially becomes yours on closing day. While some brokers may conclude their involvement at this stage, I'm committed to providing ongoing support. I'll stay in contact throughout, exploring opportunities to save you money and assisting you in preparing for your financial future.

Don't forget to arrange for home insurance, as it's a crucial part of the mortgage process. In most cases, lenders require proof of insurance before releasing funds.

Ensuring your lender has all the necessary documents to verify your income is a crucial step in achieving mortgage approval. Last-minute document searches can add unnecessary stress, so it's best to start collecting these verification materials as early as possible based on your income type. Here's what you need:

Self-Employed Income: If you're self-employed, furnish two years of notices of assessment, a copy of your business license or registration, articles of incorporation (if applicable), and your T1 general tax returns for the past two years. Additionally, include the last two years of accountant-prepared financial statements if your business is incorporated.

Commission, Contract, Part-Time, Hourly, or Seasonal Income: For these types of income, you'll need a company letter describing your role and responsibilities, along with a pay stub demonstrating your income. As consistency is vital, include your last two notices of assessment or T4 slips. If you're on contract, provide a copy of your contract and any renewals.

Full-Time Salary Income: If you receive a full-time salary, the proof of income required is straightforward. Gather a recent pay stub and obtain a "letter of employment" from your employer on official letterhead. This letter should confirm your job position, annual salary, and how long you've held this position. If you're a new employee, be prepared for the lender to verify that your probationary period has ended. If you receive commissions or bonuses, provide the last two notices of assessment to illustrate your additional earnings.

Low or Difficult-to-Prove Income: If your income is low or challenging to verify, consider making a larger downpayment or demonstrating an excellent credit history, as this can strengthen your application.

Remember to account for other sources of income, such as child support or pension income. For child support, provide the separation/divorce agreement and three to six months of bank statements showing the payments, which should constitute less than 30% of your total income. If you receive pension income, this can also be significant.

For specific situations, like permanent disability or maternity leave, gather the necessary documentation. For permanent disability, obtain a letter confirming your permanent status and bring along a paystub. If you're on maternity leave, some lenders may consider your full employment income if you can provide a letter of employment confirming your intention to return to work within a year.

If it turns out that your income isn't sufficient to qualify for the desired mortgage amount, you can explore the option of having a family member go on title with you to use their income to help you qualify.

Once your mortgage is approved, your lender will need assurance that your downpayment is not borrowed. Here's what you should prepare to demonstrate the source of your downpayment:

Savings: If you've diligently saved your downpayment, provide a 3-month history of the bank account(s) where you've accumulated the money. Ensure that the statements have your name on them. Sometimes online banking printouts may not display your name, so double-check to avoid any issues.

Gifted Funds: If your downpayment comes as a gift, ensure you have a signed gift letter. Additionally, obtain a bank statement from the donor that verifies the funds. Avoid last-minute transfers; ensure the funds are in your account at least 15 days before closing.

Large Deposits: If you've received any significant deposits, be prepared to explain their sources. If you transferred money from another account or sold investments to fund your downpayment, provide records for those respective accounts.

Proceeds from Selling an Existing Home: If you intend to use the proceeds from the sale of your current home, provide a firm purchase contract and your current mortgage statement as proof.

Foreign Funds: If you're sourcing money from outside Canada, ensure it's in your Canadian account at least 30 days before it's needed. Be prepared to present the usual 3 months of records from the foreign account.

Using RRSP Funds: If you plan to use funds from your RRSP, provide a 3-month history of the account. Keep in mind that anything deposited within the last 90 days cannot be used for your downpayment without incurring full taxation.

Lastly, it's essential not to use your entire savings for the downpayment. You'll need to demonstrate that you have an additional 1.5% of the purchase price to cover closing costs. These costs may include legal fees, appraisal fees, transfer tax, home inspection, title insurance, interest adjustments, tax adjustments, and moving expenses.

Securing a competitive mortgage rate is undoubtedly crucial for long-term interest savings. While I specialize in finding attractive rates from various lenders, it's equally important to consider the broader picture. Some cut-rate mortgages might seem enticing initially but could entail higher fees, penalties, or restrictive terms, potentially making them costlier in the long run compared to mortgages with more flexible terms.

Here are some key points to keep in mind:

Rate Complexity: Rates can be intricate and may not be applicable to all situations, such as conventional mortgages, refinances, 30-year amortizations, and rental properties. It's essential to consider your specific circumstances.

Pre-Payment Options: Saving on interest is possible by making extra payments towards your mortgage principal. A low-rate mortgage might not allow for pre-payments, missing out on a valuable opportunity to save thousands in interest.

Online Rate Ads: Online advertisements often showcase enticing rates but may not reflect the reality of your situation. These rates might come with fine print or restrictions that don't align with your circumstances. It's essential to conduct thorough research and consult with me to ensure the rate you're considering is the best fit for you.

Mortgage Features and Privileges: When assessing mortgage options, I look beyond rates. I consider factors like refinancing penalties, fixed vs. variable rates, term length, pre-payment options, payment flexibility, restrictions, fees, portability, and assumability. The goal is to create a mortgage tailored to your unique needs, aligning the right rate with suitable features for your financial freedom.

Ultimately, securing the ideal mortgage involves finding the right balance between the interest rate and the features that match your financial goals. My role is to safeguard your best interests and guide you toward a mortgage that suits your needs, both now and in the future.

For both first-time homebuyers and existing homeowners, exploring the option of having renters contribute to your mortgage can offer several advantages. Here are five compelling reasons why this approach is worth considering:

Upgrading to a Single-Family Home: Some first-time buyers aspire to move directly into a single-family home. By incorporating a rental suite, they can receive income assistance toward their mortgage instead of opting for a more affordable condo.

Enhancing Lifestyle and Pursuing Dreams: Reducing mortgage payments provides financial flexibility to explore new lifestyles or chase personal dreams. Whether it's travel, launching a business, or enabling one parent to stay at home, lower expenses can make these aspirations more attainable.

Supporting Aging Parents: Rental suites offer a practical solution for accommodating aging parents while maintaining personal space. It's important to note that if family members are the tenants, lenders and insurers typically do not consider the rental income for qualification purposes.

Financial Diversification: Homeowners who wish to reduce their mortgage expenses can free up funds for other investment avenues such as RRSPs, TFSAs, and RESPs. Lower mortgage costs can also hasten the journey to becoming mortgage-free.

Affordable Entry into Real Estate: For those looking to enter the real estate market without a substantial upfront investment, a home with a rental suite can be an excellent choice, especially in high-demand, costly areas.

Incorporating rental income into your homeownership strategy can be a strategic move, providing financial relief and unlocking opportunities for growth and personal fulfillment. It's essential to assess your unique situation and explore how rental income aligns with your homeownership goals.

Before your mortgage officially funds and you take possession of your new home, it's crucial to follow these guidelines to ensure a seamless closing process:

Secure Downpayment Funds: Keep your downpayment funds separate and easily accessible to ensure you have the necessary funds available for the closing.

Budget for Closing Costs: Be financially prepared for additional closing costs, which can vary.

Stay Current on Bills: Maintain up-to-date payments on all your bills, including your existing mortgage if applicable. Timely payments demonstrate financial responsibility.

Consult Before New Credit: Refrain from acquiring new credit or co-signing loans without consulting with me first. Sudden changes in your credit profile can affect your mortgage approval.

Preserve Important Documents: Do not pack away essential documents related to your mortgage or new home. Keep them readily accessible for reference.

Consider Mortgage Protection: Discuss options for mortgage life and disability insurance with me to protect your new debt and ensure financial security for you and your family.

Coordinate Closing Date Changes: If you need to alter your closing date, inform me in advance, and ensure that all mortgage approval conditions are met at least ten business days before the new closing date.

Secure Home Insurance: Obtain adequate home insurance coverage, as lenders typically require it before releasing mortgage funds.

Maintain Employment Stability: Avoid making significant changes to your employment situation, such as quitting your job, transitioning to part-time work, or reducing your income, especially in the period just before funding. Notify me promptly if your employment circumstances change.

Embrace Your New Home: Finally, enjoy the excitement of moving into your new home. The hard work is paying off, and your homeownership journey is about to begin!

These guidelines will help you navigate the final stages of your mortgage process smoothly and start your homeownership adventure on the right foot.

Qualifying Rate: Lenders require borrowers to pass a stress test to ensure they can manage payments at a specific qualifying rate. This rate is typically higher than the actual mortgage rate but is used to assess your financial capacity if interest rates rise. However, your actual mortgage payments will be based on the lower mortgage contract rate negotiated for you. Not all lenders available through Mortgage Brokers require the stress test, providing alternatives for those who cannot qualify otherwise.

Closing Costs: Closing costs are expenses associated with finalizing a home purchase. These costs, usually totaling up to 2% of the home's selling price, may include appraisal fees, home inspections, various taxes (e.g., Land Transfer Tax, registration fees), legal fees, title insurance, survey costs, prepaid bills (property taxes, utilities), interest adjustments, PST on default insurance, GST/HST on new builds, utility hook-up fees, moving costs, and furniture/appliance expenses. Additionally, ongoing monthly homeownership costs, such as home insurance, property taxes, utilities, and maintenance, must be factored into your budget.

Mortgage for Upgrade/Renovations : This mortgage option is beneficial for homebuyers interested in older properties that require immediate renovations. Mortgage for upgrade or renovations, allows you to include the cost of necessary renovations in your mortgage, eliminating the need for credit card debt or selling investments to fund upgrades. This mortgage covers the home's purchase price and approved renovation expenses, which can be paid off over the mortgage's term using pre-payment privileges.

First-Time Home Buyer Incentive: The First-Time Home Buyer Incentive is a federal government program aimed at reducing mortgage payments for qualifying first-time buyers with a minimum 5% downpayment for an insured mortgage. The program provides 5% of the cost of an existing home or 10% of a new home, interest-free, but repayable when the property is sold. Eligibility criteria include a maximum household income of $120,000, a maximum total borrowed amount, and a repayment requirement after 25 years or upon selling the home, based on the property's fair market value. Enhanced parameters apply to specific Census Metropolitan Areas like Toronto, Vancouver, and Victoria.

Understanding these mortgage-related terms can help you make informed decisions during the homebuying process and navigate various financing options effectively. If you have further questions or need assistance, don't hesitate to reach out for guidance.