Become a homeowner: two programs can help
You want to buy a property but you
need a little help to put your plan
into action? Mortgage loan insurance
and the Home Buyer’s Plan (HBP) are
worth looking into.
1.
Mortgage loan insurance
Mortgage loan insurance is typically required by lenders when a
borrower is investing a down payment of less than 20% of the purchase
price of the home. On one hand, this insurance protects lenders against
borrowers defaulting on their payments. On the other hand, it enables
borrowers to purchase a home, even with a down payment of only 5%,
while benefiting from the same interest rates offered to buyers with
a 20% down payment. This simple solution is offered through most
financial institutions, and has enabled millions of people in the past to
make their dream of becoming homeowners come true.
Lenders pay a premium to obtain mortgage loan insurance. Your
lender will likely ask you to reimburse this premium. You can do this
in a single transaction or you can ask that it be added to the amount of
the loan so that it will be included in your monthly payments.
The amount of the premium varies according to the amount of the
loan and of the down payment. The bigger the difference between the
loan and the value of the property, the higher the percentage used to
calculate the premium will be. If your mortgage loan is not insured, you
won’t have to pay insurance premiums but you will likely pay higher
interest rates and additional administrative fees. It follows that the
cost of CMHC’s mortgage loan insurance is largely offset by the savings
achieved by most borrowers.
It should be noted that mortgage loan insurance and mortgage life
insurance are two different things. The latter guarantees that your estate will not need to reimburse the balance of your mortgage upon
your death.
A 10% premium refund and extended amortization period without
surcharge may be available when CMHC Mortgage Loan Insurance
is used to finance an energy-efficient home or increase an existing
home’s energy efficiency.
To learn more about mortgage loan insurance visit the CMHC website (www.cmhc-schl.gc.ca/).
2.
The Home Buyer’s Plan (HBP)
The HBP limit for authorized withdrawals from an RRSP is $25,000
per person. Only the person who is entitled to receive payments from
the RRSP (the annuitant) can withdraw funds from the RRSP. You
may withdraw funds from more than one RRSP but you must be the
annuitant (the owner of the plan) in each case. The issuer of the RRSP
will not withhold income tax on these amounts. Usually, you cannot
withdraw funds from a locked-in RRSP.
To participate in the HBP, you must be considered a first-time home
buyer or make a withdrawal to buy a home for a related person with a
disability.
Furthermore, you must have entered into a written agreement (offer
to purchase) to buy or build a qualifying home. This agreement can be
signed with a builder, a developer, a contractor, a realtor or a private
vendor. A preauthorized mortgage does not qualify as a written
agreement.
You must intend to occupy the qualifying home as your principal place
of residence and your HBP balance on January 1 of the year of the
withdrawal has to be zero. There are other conditions, including the
requirement that you or your spouse or common-law partner can own
the qualifying home more than 30 days before a withdrawal is made.
You must also be a resi-dent of Canada and you have to buy or build
the qualifying home before October 1 of the year after the year of the
withdrawal.
If, during your participation in the plan, one of the conditions was not
met, your withdrawal will no longer be eligible and you would need to
add its amount to your income for that year. On the other hand, if you
do not meet the conditions to participate in the HBP in the current
year, you could participate in it during another year.
To learn more about the Home Buyer’s Plan, call 1-800-622-6232 or visit the Canada Revenue Agency website (www.arc.gc.ca).
Source: CMHC, Canada Revenue Agency, Jacques Beaulieu Consultant