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First-time homebuyers who are Canadian residents can withdraw up to $25,000 from their RRSP TAX FREE. Through Canada’s Home Buyers Plan (HBP) you and your spouse can each withdraw up to $25,000 (as of the 2009 federal budget) to build or buy a qualifying home.

Getting access to your RRSPs through the HBP is fairly easy. Fill out form T1036 at your financial institution for each withdrawal. Then make sure to file an income tax return for the year of the withdrawal and each year thereafter, until the RRSP is fully repaid.

Keep in mind there are a few rules:

· To qualify, you must be a first time home buyer and a resident of Canada at the time of withdrawal.

· You MUST purchase/build the home before October 1^st after the year of withdrawal.

· You only need to repay 1/15 of the borrowed amount starting in the second year after the year of withdrawal, or you’ll have to add the amount as income.

· RRSP contributions of up to 90 days before the withdrawal date can be used towards the HBP.

This is one of the only ways to withdraw from your RRSP tax free and a great way to get yourself into the real estate market. For more information about the HBP program go to the CRA website .

On February 16, Finance Minister Jim Flaherty announced new mortgage rules intended to help ensure homebuyers can handle their debt load when interest rates rise, as well as to slow down real estate speculation. 

"There's no clear evidence of a housing bubble, but we're taking proactive, prudent and cautious steps today to help prevent one.  Our government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," commented Minister Flaherty.

The new rules take effect April 19, 2010.  Here is a quick look at the changes, which apply to government-backed insured mortgages: 

1. Borrowers must now qualify based on a five-year fixed rate even if they choose a mortgage with a lower interest rate and shorter term.  The government’s rationale for this change is that it will help borrowers prepare for higher rates, although it may squeeze the purchasing power of home buyers.  It remains unclear whether borrowers must qualify at the five-year posted rate or the five-year discounted rate. 

2. The maximum amount Canadians can withdraw in refinancing their mortgages will be reduced to 90 per cent of the value of their homes, instead of 95 per cent.  The government’s rationale for this change is that it will help ensure home ownership is a more effective way to save.  The impact of this change is expected to be minimal as relatively few homeowners withdraw equity from their homes to this extent. 

3. A minimum down payment of 20 per cent will be needed for government-backed mortgage insurance on non-owner-occupied properties “purchased for speculation,” which realistically means rental properties.   While this measure is intended to hamper the speculative buying of properties by reducing the leverage of buyers, it will also impact those buying real estate for general investment purposes.

Be sure to talk to us to determine if these changes could affect you and for advice on the mortgage strategy that fits your needs.     

Coming up with a 5% down payment isn’t always easy, especially when you still have to cover closing costs, moving expenses, renovations, and all the other costs that come with buying a home. With a Free Down Payment mortgage the lender provides up to the 5% minimum down payment on your behalf when you take out a 5 or 7 year fixed rate mortgage. OAC

The 5% is given to the lawyer on your behalf when the mortgage closes so it can be used as your down payment. If you have your own down payment saved but would like some extra cash on hand after your purchase, the cash back could be used any way you like. Keep in mind, even with a Free Down Payment, you will still need some money of your own to cover the closing costs such as legal fees, property purchase tax (if you are not a first time buyer) and property taxes etc.

We would be happy to see if a cash back or Free Down Payment mortgage would work for you. We can also help you get a realistic idea of the total closing costs for a new purchase. Of course, as with most personal mortgages, you pay no broker fees to use our services. We are paid by the lender!

Contact us for more information or to start the process to buy your first, or next home.