WHILE BUYING YOUR FIRST HOME IS AN EXCITING AND HAPPY TIME.
It is also the time that you commit yourself to the terms and conditions of a mortgage contract to which you are likely to be bound for a very long time.
It is important that you understand how these conditions can affect you over the term of the contract.
Fixed or variable interest rates?
66% of Canadians choose fixed interest rates.
This is despite the fact that they higher than variable rates over the longer term. Fixed interest rates are particularly popular among first-time homeowners, most of whom would prefer not to expose themselves to fluctuations in interest rates.
Fixed interest rates are available for various terms from six months to thirty years. By far the most popular term is five years.
You choose the term that fits in with your lifestyle requirements and financial strategy.
If you believe that interest rates are likely to rise in the near future you may want to opt for a longer term than if you believed that rates were likely to drop.
The term will also depend on what your future plans are. You wouldn’t want to take a ten-year term if you plan to move home in the next four or five since this will cost you in penalties.
What are penalties?
Penalties are amounts that you will be charged for closing your mortgage ahead of time.
They are intended to compensate the lender for the loss of interest. The penalties on a variable rate mortgage are lower than those on a fixed term mortgage. On the variable rate, they are the equivalent of three months interest.
On a fixed term mortgage, the penalties are calculated at the greater of three months interest or the interest rate differential over the rest of the term.
Incentives Available for First-Time Homeowners
but it’s not all bad news
Registered Retirement Savings Plan
RRSP – Home Buyer’s Plan – If you qualify you can use up to $25 000 of your RRSP tax-free to help with the down payment on your home. You have fifteen years to pay it back.
Edit Land Transfer Tax Rebate
First-time homeowners buying in Ontario will receive a rebate on the land transfer tax that they pay.
First Time Home Buyer’s Tax Credit
Valued at $750, this funding is available to first-time homeowners to help them with the costs of closing the mortgage.
If you paid GST or HST on a newly built home or for renovations you can claim them back.
You need advice before you commit to a mortgage
Contact Certified Mortgage Brokers if you’re in the market for a new home
Our trained and professional brokers can explain all of the benefits and pitfalls of buying a home for the first time. We also offer some of the best rates in the industry as we have dozens of lenders on our books.