Darryl Kraemer
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The Lowdown On Down Payments
February 10, 2025
I get questions about downpayment all the time! So here is the lowdown on how much you need and how you might get it.
How much do you need?
Many Canadian homebuyers purchase a property with the absolute minimum downpayment. The thing is, the minimum can vary, so you want to be sure you know how it’s calculated.
Will you live in the home? If the house will be owner-occupied, then you need 5% down for the first $500,000 of the purchase price and 10% for any amount over $500,000 up to $1,499,999. If the purchase price is $1,500,000 or more, the minimum down is 20%.
Hoping to skip the cost of mortgage default insurance? Then you’ll need at least 20% down. Any downpayment less than 20% of the purchase price requires this insurance, which will be added to your mortgage principal.
Buying a rental or recreational property? If it’s not going to be your own principal residence, then you’ll need 20% down. Genworth and CMHC have a vacation/second home program that allows you to put 5% down but mortgage default insurance will be required. Rental properties require 20% down.
Are you new to Canada? If you’re a permanent resident, then you’ll need the same downpayment as a Canadian citizen: 5% for the first $500,000 and 10% after that. If you are a non-permanent resident, then you’ll need 10% down. And if you’re not a resident of Canada, then you’ll need at least 35% down from your own resources (not borrowed).
Smart ways to come up with a downpayment
If you’re looking to buy a second home, refinancing your existing home is often the best way to get a downpayment. The best starting point is a review of your situation.
If you’re saving for your first home, here are some ways to come up with the cash:
- A financial gift. If you’re lucky enough to receive financial support from a parent or other blood relative, you’ll need to get a signed form stating that the funds are a gift and that you are not required to pay them back at any time.
- Your RRSP: You can withdraw up to $35,000 tax-free from your RRSP or $70,000 per couple. The recent federal budget increased this from $25,000 and also announced that in 2020, this program will be available to divorced individuals. You will be required to pay the funds back over 15 years.
- FHSA: An FHSA combines some of the features of an RRSP and TFSA. Contributions will generally be tax-deductible, and when a qualifying withdrawal is made, the amount withdrawn is not-taxable.
- TFSA/Investments: If you withdraw from your TFSA to boost your downpayment, you’re allowed to re-contribute, so you never lose your TFSA room. If you haven’t set up a TFSA, then do it today and set it up so money goes in every month.
- Early inheritance: Many parents and grandparents would rather help their children purchase a home while they’re alive than have them wait for an inheritance.
- Sell assets: For instance, a vehicle or jewelry. You need to show 3 months of bank statements to support your downpayment and explain any large deposits.
- Money from outside of Canada: If you’re bringing funds from outside of Canada, you’ll want to have those funds in Canada for at least 30 days before closing, and you’ll need to provide 3 months of financial history from the original account they came from.
Often, homebuyers are actually closer than they think to buying that first or next property. Get in touch any time. Early advice can save time, money and stress!
Do you need a Personalized Paydown Plan for your holiday bills?
January 27, 2025
Most Canadians suffer with their highest personal debt load in January, when the “holiday hit” arrives and your credit card statements let you know just how much the festive season cost you. It’s especially hard if you already had outstanding debt before the holidays. That’s why now is the perfect time to talk about your Personalized Paydown Plan.
If you have at least 20% equity in your home, I can show you how to use it to roll your high-interest debt into a new mortgage for overall savings. Here’s an example—in this case, mortgage, car loan, and credit cards total $355,000. We roll that debt into a new $358,000 mortgage, including a fee to break the existing mortgage, and take a look at the result:
|
| MONTHLY PAYMENTS | |
|
| Current | New |
Mortgage | $300,000 | $1,388 | $1,877 |
Car loan | $25,000 | $495 | $0 |
Credit Cards | $30,000 | $600 | $0 |
Total |
| $2,483 | $1,887 |
Current mortgage 2.79%, 5-yr term, 25-yr amortization; new mortgage 4.89%, 5-yr term, 30-yr amortization; car loan 7%, 5-yr amortization; credit card payment based on 2% of balance. For illustration purposes only. OAC. Subject to change.
That’s a savings of $596 each month. Now let's decide how you can use that $596. If you use your prepayment privileges and apply it to your mortgage, you could reduce your amortization from 30 years to 18 years. Or, invest it in an RRSP, RESP, or TFSA to reap tax benefits and grow your wealth.
You could also consider putting a portion into a dedicated “December fund” so the next holiday season doesn’t bring financial stress. Instead, you can enjoy guilt-free giving, knowing the bills are covered.
While refinancing is not an option for everyone and every situation, I have access to other financing options that can help. If you think you could benefit from this kind of financial restructuring, get in touch and we can review your situation carefully to determine the best path for you.
Two Tax-time Advantages for First-time Buyers
The 90-day boost – If you’re buying your first home now and your closing date is at least 90 days away, let’s talk. The Federal Home Buyers’ Program (HBP) and a tax refund can boost the funds you have available for your purchase. First, make as big an RRSP contribution as you can – up to your contribution limit or $60,000 per person. You can even use your downpayment savings for this. Big RRSP contribution means a great 2024 refund. Then, after 90 days, you can go back into your RRSP and redeem your contribution under the HBP program. So you’ve got your original downpayment funds back PLUS a nice tax refund. You’ll need to pay the withdrawn funds back on a repayment plan, but this strategy can make a substantial difference in the affordability of home ownership!
$1,500 for first-time buyers – Don’t leave money on the table if you bought your first home last year! You may be able to take advantage of the Home Buyers Tax Credit (HBTC) when you file your tax return. The $10,000 non-refundable HBTC provides up to $1,500 in federal tax relief. You qualify if neither you nor your spouse (or common-law partner) have owned and lived in another home for the past five years. For more information, visit the Government of Canada website.
Bank of Canada Cuts Policy Rate to 3.25 Per Cent
January 07, 2025
In the midst of the busy holiday season, there is some welcome news that could bring a little extra cheer at a time when many are looking to make the most of their budgets.
Bank of Canada Announces Interest Rate Reduction
On the final rate announcement for 2024, the Bank of Canada once again reduced interest rates by .5%, in an effort to stimulate economic growth and maintain its inflation targets. This move aims to provide some relief to households, encourage spending, and support businesses across the country. While the rate cut has widespread implications for the economy, it also directly impacts various financial products, most notably mortgages.
What This Means For Your Mortgage
If you have a variable-rate mortgage, you're likely to see immediate benefits. The interest rate on your mortgage may decrease, which could lower your monthly payments. This is certainly a welcome gift for homeowners, as the lower payments may provide some breathing room in your budget, especially with the higher costs of living many have experienced in recent months. For those of you looking for some financial flexibility during the holidays, this change could be a timely and appreciated break.
If you have a fixed-rate mortgage, the situation is slightly different. Since your interest rate remains locked in for the term of your mortgage, this rate cut won't directly affect your current payments. However, there's a silver lining: When your mortgage term comes up for renewal, you may be able to take advantage of the lower interest rates available at that time. This could provide an opportunity to secure a more favourable rate, reducing your future monthly payments or allowing you to pay off your mortgage faster.
Opportunities To Consider
With this interest rate reduction, now could be the perfect time to assess your mortgage situation and explore ways to make the most of these changing conditions. Whether you're considering refinancing your mortgage to take advantage of lower rates or simply reviewing your current terms to ensure they're still the best fit for your financial goals, this is a moment to evaluate your options.
Refinancing could help you lock in a lower rate and result in long-term savings. Additionally, refinancing offers the possibility of adjusting your mortgage to better suit your current circumstances, whether you're looking to consolidate debt or shorten your mortgage term. Given the rate cut, you might also consider the benefits of consolidating other high-interest debts into your mortgage, taking advantage of more favourable terms.
Warm Holiday Wishes
As the year draws to a close and the holidays approach, I want to extend my heartfelt wishes to you and your loved ones. May this festive season bring joy, peace, and prosperity to your home. Whether you're celebrating with family, friends, or enjoying some quiet time to yourself, I hope you have the opportunity to relax, recharge, and reflect on the positive moments of the year.
I'm Here To Assist
For personalized advice, get in touch. Together, we can make the most of this opportunity and ensure you're set up for success in the coming year.
From my family to yours, wishing you a wonderful holiday season and a bright start to the New Year!
Six Financial Resolutions That Can Change Your Life
January 07, 2025
Feeling the post-holiday financial squeeze? You’re not alone. January credit card bills are arriving to remind us how much we spent on the festive season. That's why this is the perfect time to ensure you have the financial control to achieve your goals. Here are some strategies that can help:
- Kill high-interest debt. If you carry significant credit card balances or other high-interest debt and have enough home equity, you can consolidate that debt into one low-rate mortgage. You’ll improve your cash flow and simplify your life with one easy payment. Best of all, you can pay down your debt faster and save thousands in interest. No more running up credit cards, and you’re golden.
- Boost your credit rating. You can improve your rating quickly with a few smart moves. Always pay your bills on time. Never let your credit card balance go past the 50% mark, i.e. if you have a $5,000 card, it should never exceed $2,500. That goes for any lines of credit, too. And don’t apply for store cards when you’re asked at check-out. The better your credit rating, the better the rates you can negotiate on your next mortgage.
- Step up your payments. If you are paying your mortgage monthly, consider changing to accelerated bi-weekly or weekly payments, increasing your payment amount, and putting a lump sum, such as a tax refund, on your mortgage principal. You can save significant interest over the life of your mortgage. Even small amounts add up.
- Renovate, don’t relocate. Feeling like it’s time to trade up? Consider this: the proper renovation might be all it takes to turn your current house into the home of your dreams. It is almost always less expensive to renovate than to relocate! I have some fantastic renovation financing options to help you improve the quality of your life while increasing the value of your home.
- Choose low-interest debt. A recent Mortgage Professionals Canada survey showed that almost 10% of homeowners had enough home equity to use their mortgages for low-cost financing. The average equity takeout was $47,600 for renovations, debt consolidation, investments, second homes and rental properties, purchases, or education.
- Do not sleepwalk through your mortgage renewal. Please contact me when you receive a renewal notice. Your renewal is your golden moment to save thousands. I can help ensure you get the best possible deal!
If you’re feeling financially overwhelmed or have a new purchase, refinance, or renewal in your financial future, get in touch so I can help ensure you get where you want to go.
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