February 25 2022
When it comes to buying a home, the heaviest lift for many Canadians is coming up with a down payment. Most home buyers will either use their personal savings to pay for a home or tap into funds from investments accumulated over the years. As the housing market becomes increasingly expensive and cost of living rises, it’s become even more challenging to set this money aside. Fortunately, there are a number of incentives and options available to assist Canadians, regardless if you're a first-time homebuyer or someone looking to be approved for a second mortgage.
Home Equity Line of Credit (HELOC)
A HELOC is a line of credit that allows you to borrow and withdraw a specific amount of funds and pay interest back on the amount used. They are considered to be a second mortgage with a variable interest rate and require you to make bi-weekly monthly payments, which includes your mortgage and HELOC combined. It’s advisable to get your line of credit from your preferred lender or institution that’s not associated with where you got your initial mortgage.
First-Time Home Buyers Incentive
The First-Time Home Buyer Incentive is a shared equity program that assists first-time homeowners in buying their home. This incentive gives buyers 5% on the purchase price of resale properties and 10% on the purchase price of new construction properties to contribute towards a down payment. Buyers are required to repay the money to the Canadian Mortgage and Housing Corporation (CMHC) interest-free within 25 years of their purchase or when their property is sold. Not only does this incentive help first timers with their down payment, but it also decreases their monthly mortgage payments by allowing them to put more money down from the start.
Home Buyers’ Plan
The Home Buyers’ Plan (HBP) provides first-time homebuyers with a tax-free withdrawal of up to $35,000 from their Registered Retirement Savings Plan (RRSPs) when buying or building their home. However, you are required to pay back and re-contribute this money into your RRSP over a 15-year period. This incentive can help to reduce both your mortgage payments and monthly expenses. The HBP also allows you to maximize your invested amount, from $35,000 to $70,000, if you’re buying a home with another person.
While you’re not exactly “borrowing” money here, gifted funds are a great way to help with your down payment. It involves a parent or family member giving you funds to make a home purchase, with no intention of being repaid. To verify that these funds are not a loan, your lender will request a gift letter outlining what the funds are for, the amount being given, the relationship between you and the gifter, and proof that this gift is mutually recognized and accepted by all parties involved. When the funds have been transferred, a gift letter should be drafted and given to your lender.
A gift letter should include the following information:
At Homewise, we recognize that buying a home is an expensive milestone purchase. That’s why it’s important to be informed of all the available avenues of support before making a final decision. Our dedicated mortgage advisors work with Canadians buyers to help them find the best full-feature mortgage that supports their financial needs today and into the future. All you have to do is apply online in just 5 minutes and one of our advisors will connect with you to start the process.
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