There's something exhilarating about looking for your first home, but it may also feel overwhelming as essential issues and necessary steps appear at every turn. As a result, the majority of first-time homebuyers are unlikely to understand the crucial variables required in a successful home purchase.
Therefore, I’ve included some advice for first-time homebuyers to assist them better with topics like mortgage alternatives and first-time homebuyer incentives. So, let's get started!
Types of Mortgages:
To buy your first home, you must obtain a mortgage, and there are various variables to consider when determining which one is best. Let’s look at the various mortgage options below.
Insured, Insurable, and Uninsurable
Mortgages can be classified as either insured, insurable, or uninsurable.
If you have to pay mortgage default insurance to protect the lender, you have an insured or high-ratio mortgage. Thus, most lenders provide their lowest mortgage rates on these products.
On a conventional or insurable mortgage, you need to put down at least 20%. In this case, mortgage insurance is not required. Due to the greater risk, lenders demand higher interest rates than with an insured mortgage.
With a Uninsurable mortgage - Mortgage insurance companies will not insure a mortgage that does not meet federal guidelines. Two instances are $1 million home purchases and 30-year amortizations. As a result, uninsurable mortgages have the highest interest rates.
Variable or Fixed Rates
When applying for a mortgage, you can choose a fixed or variable rate.
A fixed-rate mortgage ensures that your payments will not change regardless of the prime rate. Because of this, a fixed-rate mortgage has a higher interest rate than a variable-rate mortgage.
A variable-rate mortgage's interest rate will fall if the prime rate falls. If the prime rate rises, so will your mortgage rate.
Open vs. Closed
An open mortgage can be paid off in full at any time. As a result, mortgage rates are often higher. Open mortgages are only used in the event of a huge cash windfall or a speedy sale of your home.
With a closed mortgage, you must pay the usual mortgage plus a monthly fee. As a result, it has a lower interest rate than a regular loan.
Amortization vs. Term
Your mortgage terms and conditions are guaranteed for the term of your mortgage. Your mortgage's interest rate will not fluctuate while it is outstanding if it is a fixed-rate loan.
Your mortgage's amortization shows you how long it will take to pay it off. The standard term in Canada is 25 years, however there is no legal requirement that it be shorter or longer.
There are a Few Programs in Canada for First-Time Homebuyers.
First-time homebuyers should familiarize themselves with any programs that relate to their situation, such as rebates, tax incentives, down payment funding options, or the minimum down payment required.
In pricey areas like Toronto, acquiring a first-time home buyer loan might be challenging due to the high cost of living. Fortunately, federal, provincial, and local governments offer incentives and grants to first-time home buyers. Let's take a look at the options below.
First-Time Home Buyers' Tax Credit
Canada's Economic Action Plan included the First-Time House Buyers' Tax Credit to help people buy their first home. Close-out charges like legal fees, inspections, and property transfer taxes can be recovered with this tool.
At current tax rates, the Home Buyers' Tax Credit equates to a $750 rebate for all first-time buyers.
RRSP Home Buyers' Plan
When it comes to saving for your down payment, a Registered Retirement Savings Plan is an excellent option (RRSP). Using your RRSP as a down payment, you can borrow up to $35,000 from the Canadian government's Home Buyers' Plan (HBP) tax-free. It's possible to borrow $70,000 from your RRSP if you're buying with someone who is also a first-time homebuyer. HBP must be paid back within 15 years because it's a loan.
Land Transfer Tax Rebate
First-time homebuyers in Ontario can receive up to $4,000 in rebates on their land transfer tax.
GST/HST New Housing Rebate
It's a win-win situation for Canadians who paid GST or HST on a new home, a renovation, or the reconstruction of a home that was destroyed in a fire. The house must be your principal residence for you to be eligible for this reimbursement. Those who have acquired a modular or mobile home also have access to it.
Your down payment and mortgage options are only the beginning of your home-buying journey.
Take advantage of these useful tips and start house hunting now.
Contact Real Estate Broker, Susan Macarz today to help you start looking for the home of your dreams.