Frequently Asked
Questions
- How much can I afford?
- What is a down payment?
- How can you acquire a home
with $0 down payment?
- How can you purchase a home
with as little as 5% down?
- Ways to pay off your mortgage
sooner
- How to use your RRSP to
help you buy your first home?
- What are the costs associated
with buying a home?
- How can decreasing my amortization
period reduce my interest costs?
- What is Cashback?
- What are the monthly costs
of owning a home?
- Have your mortgage pre-approved
before you look for a home?
- Can you take your mortgage
with you if you move?
- How often can you refinance?
- Can consolidation of your
debt save you money?
- Refinancing To Use The
Equity In Your Home
- Saving for a Down Payment
- Using RRSPs Towards Your
Down Payment
- How much money do you need
to make a down payment?
How much can I afford?
Buying a home could be the largest purchase of your life. That's
why you want to be sure that you own a home that's compatible
with your financial situation.
The simplest way to determine this is to compare your gross
income to your total debt.
What is a down payment?
Very few homebuyers have the cash available to buy a home outright.
Most of us will turn to a financial institution for a mortgage
the first step in a potentially long-standing relationship.
But even with a mortgage, you will need to raise the money for
a down payment.
The down payment is that portion of the purchase price you
furnish yourself. The amount of the down payment (which represents
your financial stake, or the equity in your new home) should
be determined well before you start house hunting.
The larger the down payment, the less your home costs in the
long run. With a smaller mortgage, interest costs will be lower
and over time this will add up to significant savings.
Compare how an average homeowner saves over $25,000 in interest
costs on a $100,000 home by making a down payment of 25% versus
the minimum down payment of 5%. (for $00 down payment. Please
refer to your Mortgage Specialist for additional information.
Some conditions applied)
Total Purchase Price: $100,000
|
Down Payment Amount |
Mortgage Principal
|
Total Interest Paid*
|
|
5%
|
$5,000
|
$95,000
|
$122,512
|
|
10%
|
$10,000
|
$90,000
|
$116,063
|
|
25%
|
$25,000
|
$75,000
|
$96,717
|
* Total interest paid by the homeowner assuming a constant
interest rate of 8% repaid over a 25-year amortization period.
The interest rate is calculated semi-annually, not in advance.
How can you acquire a home with $0 down payment?
Most lenders now offer insured mortgages for new and resale
homes with $00 down payment. Mortgages must be insured to cover
potential default of payment, Ask us for further Details
How can you purchase a home with as little as 5% down?
Most lenders offer insured mortgages for both new and resale
homes with lower down payment requirements than conventional
mortgages - as low as 5%. Low down payment mortgages must be
insured to cover potential default of payment, and their carrying
costs are therefore higher than a conventional mortgage because
they include the insurance premium.
Low down payment mortgages are often referred to as National
Housing Act (NHA) or High Ratio mortgages. Both Canada Mortgage
and Housing Corporation [CMHC] or GEN Worth Financial Canada [GEN] offer default insurance.
With all low down payment insured mortgages, you are responsible
for:
· appraisal and legal fees
· an application fee for the insurance
· the payment of the mortgage default insurance premium
(although the amount of the premium may be added to the mortgage
amount).
Ways to pay off your mortgage sooner
There are ways to reduce the number of years to pay down your
mortgage. You'll enjoy significant savings by:
· Selecting a non-monthly or accelerated payment schedule
· Increasing your payment frequency schedule
· Making principal prepayments
· Selecting a shorter amortization
How to use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings
to help finance a down payment. With the federal government's
Home Buyers' Plan, you can use up to $20,000 in RRSP savings
($40,000 for a couple) to help pay for your down payment on
your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you're using must be on deposit
for at least 90 days. You'll also need a signed agreement to
buy a qualifying home.
Even if you have already saved for your down payment, it may
make good financial sense to access your savings through the
Home Buyers' Plan. For example, if you had already saved $20,000
for a down payment - and assuming you still had enough "contribution
room" in your RRSP for a contribution of that amount you
could move your savings into a registered investment at least
90 days before your closing date. Then, simply withdraw the
money through the Home Buyers' Plan.
The advantage? Your $20,000 RRSP contribution will count as
a tax deduction this year. Use any tax refund you receive to
repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a
home sooner, it can also mean missing out on some tax-sheltered
growth. So be sure to ask your financial planner whether this
strategy makes sense for you, given your personal financial
situation.
What are the costs associated with buying a home?
First and foremost, you have to make sure you have enough money
for a down payment - the portion of the purchase price that
you furnish yourself.
To qualify for a conventional mortgage you will need a down
payment of 25% or more. However, you can qualify for a low down
payment insured mortgage with a no down payment or as low as
5%. Secondly, you will require money for closing costs (up to
1.5% of the basic purchase price).
If you want to have the home inspected by a professional building
inspector - which we highly recommend - you will need to pay
an inspection fee. The inspection may bring to light areas where
repairs or maintenance are required and will assure you that
the house is structurally sound. Usually the inspector will
provide you with a written report. If they don't, then ask for
one.
You will be responsible for paying the fees and disbursements
for the lawyer or notary acting for you in the purchase of your
home. We suggest you shop around before making your decision
on who you are going to use, because fees for these services
may vary significantly.
There are closing and adjustment costs, interest adjustment
costs between buyer and seller and (depending on where you live)
land transfer tax - a one-time tax based on a percentage of
the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in
place by the closing date. And you will be responsible for the
cost of moving.
Remember, there will be all kinds of things you'll have to
purchase early on - appliances, garden tools, cleaning materials
etc. So factor these expenses into your initial costs.
A Cashback mortgage option can be applied to any of the costs
listed above.
How can decreasing my amortization period reduce my interest costs?
If you choose a shorter amortization period, you can save a
lot of money and live mortgage-free sooner.
Just take a look how much you will save on your total interest
costs on an $80,000 mortgage amortized over 15 years versus
the same mortgage amortized over 25 years.
Mortgage $80,000, 25-year amortization:
| Interest rate
|
Monthly payment
|
Total repaid*
|
Total interest cost*
|
|
5%
|
$465.29
|
$139,583
|
$59,583
|
|
7%
|
$560.34
|
$168,096
|
$88,096
|
|
9%
|
$662.39
|
$198,709
|
$118,709
|
|
11%
|
$770.03
|
$230,999
|
$150,999
|
Mortgage $80,000, 15-year amortization:
| Interest rate
|
Monthly payment
|
Total repaid*
|
Total interest cost*
|
|
5%
|
$630.50
|
$113,490
|
$33,490
|
|
7%
|
$714.60
|
$128,628
|
$48,628
|
|
9%
|
$803.62
|
$144,650
|
$64,650
|
|
11%
|
$897.07
|
$161,469
|
$81,469
|
* Calculated assuming a constant interest rate throughout amortization
period over the life of the mortgage. Compounded half-yearly
not in advance.
You can also accelerate payment frequency, increase amount
of mortgage payments, make principal prepayments or make Double-Up
payments to further reduce amortization period.
What is Cashback?
Cashback gives you cash that you can use towards anything you
want! Use the money for renovations, closing costs, furniture,
appliances, or anything else you choose. You can even apply
it to your mortgage as an immediate prepayment of the principal.
That could potentially save you thousands of dollars in interest.
However, If you decide to sell your home or pay out your mortgage
prior to maturity date you will be obligated to repay the bank
part or the whole cash back.
To find out more about Cashback contact us.
What are the monthly costs of owning a home?
Needless to say, you'll have financial responsibilities as
a homeowner.
Some of them, like taxes, may not be billed monthly, so do the
calculations to break them down into monthly costs. Below you
will find a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense.
The actual amount of the mortgage payment can vary widely since
it is based on a number of variables, such as mortgage term
or amortization.
Property Taxes
Property tax can be paid in two ways - remitted directly to
the municipality by you, in which case you may be required to
periodically show proof of payment to your financial institution;
or paid as part of your monthly mortgage payment.
School Taxes
In some municipalities, these taxes are integrated into the
property taxes. In others, they are collected separately and
are payable in a single lump sum, usually due at the end of
the current school year.
Utilities
As a homeowner, you'll be responsible for all utility bills
including heating, gas, electricity, water, telephone and cable.
Have your mortgage pre-approved before you look for a home?
It makes a lot of sense!
Once you apply for a pre-approved mortgage, you'll know how
much you can reasonably borrow to buy a home. It tells you what
your payments will be, and it defines a realistic price range
for your financial situation.
· With a pre-approved mortgage, you can lock in at today's
rates.
· If rates go down before you complete the purchase,
you will automatically get the lower rate for the term you selected.
This protection could save you a substantial amount of money
if interest rates fluctuate while you're house shopping. With
a pre-approved mortgage, you're much better prepared to shop
for a home:
· You'll have a clear idea of what you can afford in
terms of price, down payment, legal fees and other expenses
· You'll be able to make an offer when you find a perfect
home.
Because you have all the financial facts in hand, your purchase
commitment is far more likely to be one you can live with comfortably.
After the bank receives your final offer to purchase, your
mortgage can be quickly processed, subject to satisfactory property
appraisal .A pre-approved mortgage puts you under no obligation
and is available to you at no cost.
Fixed rate or variable rate
When you take out a fixed-rate mortgage, your interest rate
will not change throughout the entire term of your mortgage.
As a result, you'll always know exactly how much your payments
will be and how much of your mortgage will be paid off at the
end of your term.
With a variable-rate mortgage, your rate will be set in relation
to Prime at the beginning of each month. In other words, it
may vary from month to month. Historically, variable-rate mortgages
have tended to cost less than fixed-rate mortgages when interest
rates are fairly stable.
When rates change, your payment amount remains the same. However,
the amount that is applied toward interest and principal will
change. If interest rates drop, more of your mortgage payment
is applied to the principal balance owing. This can help you
pay off your mortgage faster
Can you take your mortgage with you if you move?
Most Banks have portability option lets you transfer the terms
and conditions of your current mortgage to your new home, subject
to a credit review and property appraisal when you make the
new home purchase. Please note the mortgage portability option
cannot be used in combination with the assumable mortgage option.
How often can you refinance?
There is no maximum for how many times you can refinance. But
you must qualify each time you apply. For more information,
contact a mortgage specialist.
Can consolidation of your debt save you money?
You could save a substantial amount by consolidating your outstanding
high interest loan and credit card balance using refinance option.
Take a look:
| Credit
Type |
Balance |
Annual Interest
|
Annual Interest with
Refinance Option |
Savings |
|
Credit Card
|
$10,000
|
$2,880
|
$600
|
$2280
|
|
Loan
|
$5,000
|
$350
|
$300
|
$50
|
|
Total
|
$15,000
|
$3230
|
$900
|
$2330
|
1 Based on 28.8% annual interest.
2 Based on 7% annual interest.
3 Based on 6% annual interest.
Plus, you'll also enjoy the added convenience of having all
your debt, with one monthly payment
Refinancing To Use The Equity In Your Home
Thinking of renovating your home? Want to consolidate debt?
We make it easy to use the equity in your home to help achieve
these goals. It's a lower cost way to borrow allowing you to
access additional funds by adding them on to your existing RBC
Royal Bank mortgage.
With refinancing option you can borrow up to 90% of the appraised
value of your home, minus the remaining mortgage balance (CMHC/GEN Worth Financial Canada
fees may apply).
You're in Complete Control
With the refinance option, you can use the money whenever you
want, for whatever you want, including:
· Renovating your home
· Purchasing another property
· Buying a car or boat
· Paying for your child's education or purchase rrsp
for your retirement
Consolidate and Save
The refinance option allows you to refinance your mortgage to
consolidate your debt - including high interest credit card
balances and loans - at a lower rate of interest. There are
some costs associated with this option.
Just imagine how much you'll save. Plus, you'll enjoy the added
convenience of having all your debt in one place, where you
can pay it off each month.
Saving for a Down Payment
Saving enough money to buy a home can seem overwhelming, but
you may be able to get your down payment faster with a savings
or investment plan. A down payment is the amount of money needed
up front to buy a home.
Personal Bank Accounts
Open a bank account at a Bank and set aside money specifically
for your new home. Make a habit of paying into this account
on a regular basis, just as you pay your monthly bills. Remember,
you will need cash (or a certified cheque) for the down payment
and the closing costs associated with buying a home.
GIC (Guaranteed Investment Certificate)
As the money in your bank account grows, or if you already have
money set aside, you may want to invest in a GIC (Guaranteed
Investment Certificate), where you can choose from a variety
of terms at competitive rates of return. If you think you'll
be tempted to dip into the funds before you're ready to make
your down payment, choose a non-redeemable GIC that locks the
money away for the duration of the certificate.
Using RRSPs Towards Your Down Payment
· Registered Retirement Savings Plans are a good way
to secure your financial future while enjoying tax benefits
today. You may also be able to use your RRSP savings towards
the purchase of a home. As a first-time buyer, you may also
be eligible for the government-approved CIBC RRSP Home Buyers'
Plan.You and your eligible spouse may withdraw up to $20,000
each from your existing RRSP for at least 90 days. You don't
have to pay income tax on the funds, as long as you repay the
total amount to your RRSP over the next 15 years. And your payments
don't have to start until the second year after the withdrawal.Talk
to your Mortgage specialist to find out if the RRSP Home Buyers'
Plan is a viable option for you.
·
· Set up a bi-weekly automatic savings plan.
How much money do you need to make a down payment?
You can buy a house with $00 down payment or for as little
as 5% down, but remember that the larger the down payment, the
easier the other expenses will be to manage. We encourage you
to calculate what you can afford to work out what's best for
you. Once you're ready to put an offer on a property you'll
need part of your down payment as a deposit, so remember to
keep some funds easily available and accessible.An ideal down
payment would be 25% of the purchase price of the home. We recommend
a down payment of at least 10% of the purchase price.
RELATAED TOPICS:
Choosing the right mortgage
Mortgage Information
Making the Mortgage Decision (Renting versus Buying)
Frequently Asked Questions
