Mortgage vs. HELOC
Buying your first home is a big milestone, however getting there can be a long journey. You're required to save at least a 5% down payment, qualify for a mortgage, and have sufficient money left over for both closing costs (minimum 1.5% of the purchase price) as well as furnishing your place. Not to mention being able to afford the mortgage payment and new costs associated with home ownership (i.e. property taxes, home insurance, etc.). Owning a home is a rewarding experience and can teach you a lot about financial discipline. Home ownership can also be a lucrative long term investment as you begin to build equity by paying off your mortgage.
To make it easier for first time home buyers to purchase a property, the government has implemented several programs with financial incentives. The main ones are: the First-Time Home Buyers' Tax Credit, RRSP Home Buyers' Plan, and the Land Transfer Tax Rebate.
This guide will give you a high-level overview of each of them as you prepare for this exciting next step in your journey towards home ownership.
To qualify for the Home Buyer's Tax Credit or the RRSP Home Buyer's plan, Canadians must meet the following criteria:
The conditions to qualify for the land transfer tax rebate are slightly different and vary across the provinces that offer the rebate.
The First-Time Home Buyers' Tax Credit is a $5,000 tax credit meant to assist first time buyers with the financial burden of purchasing a home. It can be claimed against personal income and provides a rebate of $750 (multiplying $5,000 by the lowest personal tax bracket of 15%). It can be claimed on line 369 of your personal income tax return in the year you purchase a home.
The $5,000 tax credit may be split between the individual and their spouse/common-law partners as long as the total does not exceed $5,000. It can also be split between any individuals that decide to jointly purchase a property.
The RRSP Home Buyers' Plan (HBP) allows you to withdraw up to $25,000 from your RRSP to be used as down payment for your home purchase with no tax consequences. It is a great way to access savings that would otherwise be taxed if withdrawn prior to retirement. To withdraw funds from your RRSP for this purchase you must present an agreement to buy or build a qualifying home for yourself (or an individual with a disability).
To participate in the HBP you must take the following steps:
The often forgotten cost of purchasing a property is the land transfer tax. It is levied by the provincial government and must be paid upfront when purchasing a home. The cost can add up to quite a lot, especially on higher priced properties. You can access the Rates.ca Land Transfer Tax Calculator to figure out exactly how much you'd be expected to pay on a home purchase. Thankfully the governments of Ontario, British Columbia and PEI offer a land transfer tax rebate to first time homebuyers.
In Ontario to qualify for the rebate:
The refund for properties in Toronto can be up to a maximum of $3,725 while properties outside of Toronto could qualify for a maximum refund of $2,000. The total refund is determined based on the following schedule:
Purchase price to rebate:
Purchase price to rebate:
In BC to qualify for the full rebate:
*If the three last conditions are not met the purchaser can still qualify for a partial rebate.
The refund is determined based on the following schedule:
Purchase price to rebate
In PEI to qualify for the rebate:
A full rebate is provided as long as all the above conditions are met.