How much can be put down?
The minimum requirement of a down payment in Canada is at least 5% of the price of the home. If your down payment is below 20% of the price of the home you are required to obtain mortgage loan insurance coverage from the Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada. The amount of this insurance is based on the size of the down payment, the smaller the down payment, the higher the premium. This insurance is added onto the mortgage itself and will be part of your payment, it is not required to be paid upfront. If your down payment amount is 20% or more of the purchase price of your home you will not require mortgage insurance and you will save this cost.
What qualifies as a down payment?
The down payment could come from your cash savings, investments, a gift, an inheritance, or even your Registered Retirement Savings Plans (RRSPs) by utilizing the Home Buyers' Plan (HBP).
Home Buyers' Plan at a glance: The Home Buyers' Plan (HBP) is a federal government program designed to make the purchase of a home more accessible by borrowing funds from your RRSPs should you qualify as a first time homebuyer. Currently, you are able withdraw up to $35,000 from your RRSPs to use as a down payment. If you are buying a house with a partner or spouse and they are also considered a first time home buyer, they can take up to $35,000 from their RRSPs too for a potential combined total of $70,000.
A few things to note:
- You must enter into a written agreement to buy or build a qualifying home
- Have intentions to occupy the home as a principal place of residence
- You must be considered a first time home buyer or have had a break down of marriage or common-law partnership
- On January 1 of the year of the HBP withdrawal, any previous HBP balance must have been repaid
- The qualifying home must be bought or built before October 1 of the year following the HBP withdrawal
- Cannot have owned the qualifying home more than 30 days before a withdrawal is made
- You must be a resident of Canada to qualify
- The funds must have been held in an RRSP for at least 90 days before they can count as a HBP withdrawal
- The withdrawal is not taxable
- You must start repaying your RRSP in the second year following the withdrawal, from there you have 15 years to repay the full amount withdrawn and must pay at least 1/15 each year or be subject to penalties by the CRA.
- You miss out on the tax-deferred income that this money could have accumulated
Don’t have $35,000 in your RRSP but still want to take advantage of the Home Buyers’ Plan? A Motor City RRSP loan could help you—talk to your Financial Services Representative about it.