realtylinkonline

March 2002

Show me the money: your first steps to obtaining a mortgage

With today’s record low interest rates, many potential first-time buyers are seriously considering getting into the real estate market. Along with the purchase of a home, comes a mortgage.

To start your savings program, here are some options to consider.

1. Personal bank accounts
   Open a bank account and set aside money for your new home. Pay this account as you would your monthly phone bill.
2. Investments
   As the money in your bank account grows, or if you already have money set aside, you may want to invest with the help of a financial planner.
3. Using RRSPs towards your down payment
   You may be able to use your RRSP savings towards the purchase of a home. The current Home Buyers’ Plan permits first-time homebuyers to withdraw up to $20,000 from their RRSP to buy or build a home. If you’re buying with your spouse or partner, you both may be able to withdraw $20,000, which would give you a total of $40,000 toward your down payment. The amount withdrawn is treated as a loan and must be repaid within a 15-year period, commencing in the third year after the withdrawal.
4. A gift from your family
   You may use funds received from relatives to purchase a home. You will need to supply a gift letter to your financial institution stating that the money received is a gift and does not have to be repaid.

You can buy a house for as little as five per cent down. Your REALTOR® will be able to calculate the amount you qualify for, or refer you to a mortgage consultant. If your down payment is 25 per cent or more, of the lending value, you may qualify for a conventional mortgage, this means you don’t have to pay lending insurance. If you are making a down payment of less than 25 per cent, the mortgage must be insured. The insurance protects the lender against borrower default.

The larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It’s important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.

A mortgage is likely the biggest loan you’ll have in your lifetime, so it’s important you’re prepared and knowledgeable about the process before you begin. Your REALTOR® will be able to assist you in choosing a mortgage process that best suits you.