Here are some Frequently Asked Questions.
To determine ‘affordability,’ you will first need to know your taxable income and the amount of any outstanding debt. Assuming it is your principal residence you are purchasing, calculate 35% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, add half of the estimated monthly condominium maintenance fees in this calculation.
Second, calculate 42% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation is used for housing-related payments, including your mortgage payment. These calculations are based on lender guidelines.
In addition to considering what you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income, you may want to settle for the lower amount rather than stretch yourself financially.
Mortgage Down Payment
The minimum down payment is 5% of the purchase price, subject to certain price restrictions for homes purchased above $500,000 and 1 million. In addition to the down payment, are closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, when applicable). Mortgages with less than 20% down must have mortgage loan insurance provided by either CMHC, GE, or CG.
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. If you are a first-time home buyer, the Home Buyers Plan (HBP) allows you to withdraw money from your Registered Retirement Savings Plan (RRSP) tax-free to make your down payment. The HBP is administered by the Canada Revenue Agency (CRA). There are certain conditions you must meet to be eligible for the HBP. The withdrawal from your RRSP does not need to be included in your income on your annual income tax return, and no tax is taken off the money you withdraw. What is the payback period? – You don’t have to start paying back the money to your RRSP until two years after the purchase of the home. – You must pay back all withdrawals from your RRSP within 15 years by making RRSP deposits each year, starting the second year following your withdrawal. CRA will determine what your minimum yearly repayment will be and will notify you once you need to start repaying the amount. – If you do not repay the amount due in a given year, it is included in your taxable income for that year and you’ll have to pay income tax on this amount. source: Financial Consumer Agency of Canada.
Mortgage Interest Rates
The interest rate on a fixed-rate mortgage is set for a pre-determined term. This offers the security of knowing what you will be paying for the term selected.
Costs Associated with Home Ownership
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.
Is the largest expense and can vary 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 show proof of payment to your financial institution periodically; 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.
Maintenance and Upkeep. You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps preserve your home’s market value, enhances the neighbourhood, and, depending on the kind of renovations you make, could add to your property’s worth.
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