In Canada, if you put less than 20% down on a home purchase it must be insured by the Canadian Housing and Mortgage Corporation (CMHC). Essentially, this is default insurance which means that your bank gets compensated in the event you can no longer pay your mortgage. You pay a fee based on the loan-to-value ratio of your mortgage. It can either be paid in a single lump sum or amortized over your mortgage period and added to your monthly payments which lessens the burden. For example, the premium on a mortgage with 10% down is 3.10%. Learn more about the CMHC premiums by visiting cmhc-schl.gc.ca. If you want to avoid or minimize the premiums, start saving.
Don’t forget that, in Canada, the Home Buyer’s Plan (HBP) allows first-time home buyers to withdraw up to $25,000 from their RRSP to purchase or build a home, without having to pay tax on the withdrawal. In addition, HBP withdrawals must be repaid over a 15-year period or included in the individual’s income if not repaid.
2. Mortgage Pre-Approval
The most important thing to know when shopping for a home is what you qualify for. Typically, your monthly housing costs shouldn’t be more than about 30% of your gross monthly income and your entire debt to income ratio shouldn’t exceed 40%. Speak to a mortgage broker to understand how much you can borrow. Not only does this help narrow your search and save time, it shows you’re a serious buyer. Having a pre-approval in hand gives you leverage when it comes time to negotiate.
3. Closing costs
Everything from a GOOD home inspection to a notary and adjustments for condo fees and taxes should be considered in this calculation. Then there’s the one time Welcome Tax to account for. And if you’re buying a new construction, don’t forget the sales tax. We recommend estimating at least 1.5% to cover these costs.
For up to date information on Welcome and Municipal taxes visit the Financial Management section of the City of Montreal website here.
4. Utilities and taxes
You’ll need home insurance to close the deal and if you’re buying a condo there’s monthly condo fees. In addition, municipal taxes are billed bi-annually but can be collected monthly from your bank on top of your mortgage payment. Then there’s utilities which, if you’re renting, you’re likely already paying.
5. Maintenance and repairs
When owning a home, it’s always good to put some money aside for any renovations or repairs you may like to do. That said, if you’re making some major changes like upgrading a kitchen or bathrooms, you’re likely to see a return on that investment when it comes time to sell. If you’re happy where you are, you can always opt for a re-evaluation and borrow against your home if it makes sense.