Buyer's Guide » Incentive Programs are Worth a Second Look

Whether or not it's your first time buying a home, it pays, literally, to investigate incentive programs that can assist you with your purchase. Some of the programs have changed as homebuyers' needs have changed.

When buying a home under a conventional mortgage you will be required to pay a minimum of 25 % of the purchase price as a down payment. Although this amount can't be borrowed, gifts from friends or relatives are acceptable. But people who are unable to come up with this much cash at a moment's notice shouldn't feel dishearten.

The Canada Mortgage and Housing Corporation (CMHC) as well as other private companies offer insurance on a high ratio mortgage that provides 95% financing to the buyer. With this mortgage plan, you pay only 5% down to purchase your home. Originally launched as an incentive for first time homebuyers, the program was opened-up to include all homebuyers in May 1998.

To participate in CMHC's 5% down program, the property you intend to buy must be less than $250,000 for the Greater Vancouver area or between $125,000 - $175,000 for other areas in BC. You must also have a minimum mortgage term of three years.

However, you should also know that to take advantage of this program you will have to pay an insurance fee that equals 3.75 % of the mortgage as well as an application fee. The insurance fee provides confidence to mortgage lenders that they will be paid back by the insurer (CMHC) if you default on your mortgage.

Another option to consider is the Home Buyers Plan. This program allows buyers to withdraw up to $20,000 from their RRSP to buy or build a home. The advantage of this plan is that you don't have to pay tax or interest on the money you withdraw. Some of the criteria that must be met include:

  • You must be a resident of Canada and this home must be your principal residence;
  • The money must be in your RRSP for at least 90 days;
  • You and your spouse must not have owned a home within the past 5 years, together or individually;
  • You are required to pay the loan back to your RRSP in minimum annual installments over 15 years, starting the second year after you withdraw the money.

In the 1998 federal budget, amendments were made to the Home Buyers' Plan to include home purchases that accommodate a dependent, disabled relative. Also starting in 1999, homebuyers who have already used the plan and have fully repaid their RRSP may be eligible to use the plan a second time. So take a second look at incentive programs for homebuyers, you might be pleasantly surprised.