Saving for your first home

Mortgage Tips Chase Cooper 20 Feb

Saving for your first home.

 

Saving for your first home is an exciting time for anyone, you are finally able to start putting money away for that first home purchase!  

 

Here is a breakdown of the BEST ways to save money for your first home.

 

First Home Savings Account (FHSA):

The FHSA was introduced by the government as a way to help Canadians save their down payment faster and more tax efficiently (hard to believe right?!). 

Here are the key highlights, and then we will deep dive into them.

  1. A new tax-advantaged account designed to help Canadians save for a down payment

  2. Combines the power of the TFSA and RRSP to help prospective first-time home buyers

  3. Contributions to the FHSA are tax deductible, while withdrawals are tax-free giving you the “best of both worlds” while investing for your home purchase

  4. Contribute up to $8,000 per year once opened, up to a lifetime maximum of $40,000

Firstly, lets talk about the tax deduction and how that can boost saving for your first home WAY faster.  If you make $80,000 per year and contribute $8,000 into your FHSA you will get back approx $2256 in BC.  Tax return calculator

This means you just increased your savings by 22%!  

The tax-free withdrawal is the second beautiful thing about this account, you can withdraw the whole amount and there are no taxable events.  This means you keep every penny you withdraw AND it grows tax-free!

The icing on the cake?  Well, unlike your RRSP Home Buyers Plan you don’t have to contribute back into the account.

 

Who can open a First Home Savings Account?

To open an FHSA, you must:

  • Be between the ages of 18 and 71

  • Be a current tax resident of Canada

  • Have not lived in a home that you or your partner owned in the current calendar year or any of the previous 4 calendar years

  • Be opening the account to save for buying a qualifying home in Canada

This is easily the best option for any first-time home buyer, but what happens if you already have RRSPs going since this program is new? Simple.

Well, you can use BOTH of these accounts!  Yes, both!

The RRSP homebuyer plan used to be the be-all, best way for any first-time home buyer to save.  Now that it has been relegated to 2nd position, the Home Buyers Program is still a great program that offers the same benefits of having the tax deduction, unlike the FHSA you can’t only use up to $35,000 and this must be prepaid back over the next 15 years.  

What happens if you don’t pay it back?  The amount you were to contribute is added to your annual income and you have to pay taxes on it.

Let’s use $15,000 as an example.  If someone pulled $15,000 out of their RRSP for the home buyers program, they would then have to repay $1,000 per year into the RRSP, otherwise that $1,000 is added to their annual income at tax time.

What is a Mortgage Renewal

Mortgage Tips Chase Cooper 14 Feb

What is a mortgage renewal?

A mortgage renewal is when you have an existing mortgage contract that is coming to an end.  The mortgage needs to be renewed into a new contract, this contract will have new rates, terms, and options.

In Canada, when you have a mortgage, your lender commitment has an interest rate, a term, and an amortization period.  The typical starting amortization period is 25 years, although you can sometimes extend that to 30 years if you have 20% down or more.  The interest rate is determined by the length of term you select, this can be anywhere between 1-5 years.  

Once your mortgage contract term is up i.e. if you selected a 5-year term in July of 2019, your mortgage contract will mature in July of 2024.  When this date comes, you must renegotiate with your current lender OR shop around and find a new lender. 

 

How does the renewal process work?

 

This process can feel overwhelming, but rest assured it is very simple.

 

You have 2 options to consider when your mortgage is up for renewal.

 

Option 1:  You are simply going to just sign an agreement with your current lender.  Yes, it is just that easy.  So why would anyone take option 2?  Well, a little-known fact is that many lenders will only give you what they believe you will take, and from my experience, it is always higher than the market has to offer.  That is a price you pay for convenience.

Option 2:  You decide you want to see if there are other, more competitive, options.  You can elicit the services of a mortgage broker or do the shopping yourself from bank to bank.  When your mortgage comes for renewal you will be required to provide documentation for the new lender. But why?  This is because they need to ensure you qualify for the mortgage again, this does create a bit more work BUT that payoff is almost always worth it as you save money by finding a lower rate and hopefully a better product.

 

Things to consider with your mortgage renewal

 

Your mortgage renewal is an opportunity to look at your current situation and reflect on what the priorities will be in the next mortgage term. 

Questions you can ask:

 

  • Am I going to be moving soon or relocating?

  • Am I worried about my payments going too high?  Are there options to help lower them?

  • Do I have debt I want to look at consolidating?

  • Should I go fixed or variable?  What are the benefits of each?

  • Where are rates at now and are they trending down or up?

  • Has my current lender provided me with the service I am looking for?

  • Are there other mortgage options outside of the Big Banks?

 

A Mortgage Broker or Bank specialist should be asking questions to be able to better understand YOU as an individual.  

 

Does it cost money to move your mortgage?

 

Typically, no.  But there are some cases where there could be a charge (this varies from province to province).    

 

  • Did you put less than 20% down?  

  • Do you have a home equity line of credit attached to your mortgage? 

  • Is there a second mortgage behind the first?

 

MANY factors need to be considered when determining what can be done with your renewal, and what options are available to you.  But fear not, that is what a mortgage broker is licensed to do and experienced in doing.  We will help navigate things for you!

 

When should I start my mortgage renewal process?

 

I always recommend people start reaching out around 4 months before their mortgage renewal.  Starting the process early gives ample time to get things in order and paperwork in so that there aren’t any delays.  It also gives you protection from rate increases if you start early.

 

My lender offered me an early mortgage renewal, is this the same as a normal mortgage renewal?

 

No, early renewals are exactly what they sound like.  The lender renews your mortgage the moment you sign the agreement that they send out.  Anybody renewing their mortgage in 2024, 2025 and 2026 will see higher rates than the current contract they are under.  So why would you lock into higher rates sooner than you have to?  You wouldn’t!  

Never take an early renewal, you may miss out on lower rates down the road.

 

What documents do I need to supply to shop out my mortgage renewal?

 

While this can vary depending on your situation, below is a generic list of what you may need:

 

  • Income documents – Letter of employment, pay stub, T4’s (this can vary if you are self-employed)

  • Mortgage documents – Current mortgage statements or renewal agreement, property tax bill showing paid, copy of home insurance policy.  If you have multiple properties you will have to supply documents for those as well.

  • Void Cheque 

 

Can a lender decline my mortgage renewal?

 

Although it is rare, yes, any lender has the right to refuse to renew your mortgage.  This happens IF you have shown to be delinquent on your mortgage payments during the term you had.  If that is the case, they can decline your renewal.  If this happens, you will have to shop around to find another lender or you will have to sell your home.

 

What happens if I don’t sign a mortgage renewal agreement and my maturity date passes?

 

Depending on your lender, they may automatically renew you into their open variable rate or a 6-month closed rate.  These rates are NOT your friend, they are typically much higher than you will get in the market, this is why we say START EARLY!!!

 

Mortgage Renewal tips and tricks

Here are some best practices and strategies that we recommend to ensure you get the best options at renewal.

 

  • Start early

  • Get a second opinion

  • How do your finances look 

  • Ensure credit is in good standing

  • Think budget, where do you need your payments to be to be comfortable

Remember, don’t be late the the party and ALWAYS get a 2nd opinion on your renewal offer.

Pre-Approvals and what to expect!

Mortgage Tips Chase Cooper 1 Feb

Your Pre-Approval Guide:

1.   Demystifying Mortgage Pre-approval:

    •  It’s like giving your finances a spa day, complete with a deep dive into your economic well-being.

    • Think of it as your financial passport to Homeownership Land.

 

2.   Benefits of Pre-approval – Your Financial Roadmap:

  • Get a budget roadmap to avoid driving your dreams into a financial ditch.

  • Sellers love pre-approved buyers; it’s like bringing a VIP pass to the real estate party, they know you are good to cover the mortgage which means YOU get to negotiate!

3.   Documentation– Your Mission, Should You Choose to Accept:

  • Getting pre-approved means you have to supply documentation, this includes:  ID, Letter of employment, pay stubs, tax returns (the financial version of a diary), and bank statements.

4.   Timing is Everything – Early Birds Catch the Dream Homes:

  •  Start the pre-approval journey early, like planning your summer beach body in winter—because dream homes wait for no one.

5.   Speedy Gonzales or Slowpoke? Your Choice:

  • Quicker document submission means a faster mortgage estimate. It’s like ordering express delivery for your financial future.

6.   Pre-approvals Expiry Date – It’s Not a Soufflé:

  •  Pre-approvals have a shelf life of usually 30, 60, 90, or 120 days—use it wisely.

7.   Pre-approval vs. Pre-qualification – Spot the Difference:

Mortgage Pre-approval

-Takes up to 10 days for a thorough check-up. Your financial info gets a stamp of approval.

– Requires a real-deal credit check and employment verification.

– The lender says, “Here’s what we’ll lend you.”

   Mortgage Pre-qualification:
– They are extremely fast.

– Based on your version of the story (financially speaking).
– No documents are used

8.   Pre-approval vs. Approval – One Step Closer to the Dream:

  • Pre-approval is the first date; approval is walking down the aisle. There’s paperwork involved, but the payoff is worth it.

9.   Cautions in Mortgage Pre-approval:
– Your pre-approval has an expiration date. If life throws curveballs, like a sudden career change or discovering you’re secretly a long-lost royal, your pre-approval may need a refresh.

In the intricate dance of homeownership, consider me your guide. Let’s turn your dream home into a reality!🏡😄