Before you start scouring Kitchener and Waterloo for your dream house, it’s important to know what you can afford and which available mortgages are right for you.

 

 

For first-time buyers, often the hardest part of buying a home is putting together the down payment. It can take years of saving or help from the family to get the tens of thousands needed.

 

This is where the Canadian government’s Home Buyers' Plan (HBP) for first-time buyers comes in. It lets you and your partner borrow up to $25,000 each from your individual RRSPs—tax free! That’s a total of up to $50,000 toward your first home.

 

Having a larger down payment can save you thousands of dollars over the course of your mortgage since down payments that are worth 20% or more of the home’s value don’t need mortgage default insurance. Avoiding this extra fee means your mortgage won’t creep up even higher than the price of your home. The drawback to using the HBP is that the money you borrow won’t experience the growth you would see if it stayed in your RRSP. It’s a serious and very personal decision. The equity you build in your home may offset lost earnings, but there is no guarantee.

 

The money you withdraw from the HBP has to be paid back within 15 years of withdrawal. The actual repayment is required to start at the beginning of the second year after you remove the funds. The Canada Revenue Agency will let you know how much is due and when your payments must start. Failure to repay the set amount any given year results in that year’s owed money being added to your taxable income for that year.

 

 

If you qualify for the government’s Home Buyer’s Plan, you will be looking for your first mortgage. This lets you bridge the gap between your down payment and the actual cost of your new home.

 

If you already own a home, you will need a different type of financing. A second or third mortgage is an option. This mortgage borrows against the equity you’ve built over the years. It’s the difference between what your house is worth on the current market and what you owe on the balance of your first mortgage.

 

You can use a second or third mortgage to consolidate debt, for home renovations, for university tuition, for tax arrears, or any other situation.

 

You can also choose to refinance your mortgage. This means taking out a new, and often higher, mortgage that will pay off your existing mortgage. People refinance for many reasons. You may want a lower interest rate, a shorter mortgage term, or a lower monthly payment.

 

Refinancing is a good solution if you find your budget is tight and your mortgage payments are hard to make each month.

 

When you’re looking at houses and mortgages in Kitchener, take the time to do your research so you understand your down payment options and know how much you can really afford.