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First-time home buyer mortgages and incentives
Learn more about how you can take advantage of first-time home buyer incentives to get the best deal on your mortgage.
Buying your first property is among the biggest decisions you’ll make in a lifetime. And if you get your home at a good price with strong mortgage rates and terms, it can also become an investment that grows your money over time. Find out more about how you can take advantage of first-time home buyer incentives to get the best deal on your first mortgage.
Compare first-time home buyer mortgages
What's in this guide?
- Compare first-time home buyer mortgages
- Choosing the right type of first-time home buyer mortgage
- How to compare lenders as a first-time home buyer
- Ways to save money on your first-time home buyers' mortgage
- First-time home buyer mortgage incentives
- Tax perks for first-time home buyers
- How much can I borrow?
- Bottom line
- Frequently asked questions
Choosing the right type of first-time home buyer mortgage
There are a couple of different types of first-time home buyer mortgages you can sign up for depending on your preferences. You can mix and match the following options to get the ideal fit:
- Fixed vs. variable rate. Fixed-rate mortgages come with monthly payments that remain the same for your whole loan term, which lets you stick to a budget. Variable rates mortgages fluctuate up or down, depending on what the market is doing. This means they tend to be more risky because they come with unpredictable monthly payments.
- Closed vs. open mortgage. Closed mortgages typically come with lower interest rates but they don’t allow you to refinance or repay your loan before your term is up unless you pay a penalty. Open mortgages give you more flexibility to make early payments or refinance your loan, but they typically come with higher interest rates.
- Short-term vs. long-term mortgage. You can usually finance your mortgage for a term that lasts between six months and five years. You’ll typically get the lowest rates with a five-year term, though this can vary by lender. That’s why you’ll want to check the rates for a number of different terms and lenders to find the best deal.
How to compare lenders as a first-time home buyer
Consider the following factors when you’re comparing lenders to find the best fit for your needs:
- Interest rates. Compare the interest rates on offer to find the best rates for your mortgage. Finding rates that are even 0.5% lower than the next competitor can save you thousands of dollars in interest over the course of your term.
- Fees. Consider set-up and prepayment fees when looking for your first-time home buyer mortgage. These fees can sometimes add up to between 2% and 10% of your home loan, so it’s worth finding the lender that will charge you less.
- Term length. Look for a term length that doesn’t lock you in for too long but allows you to take advantage of the lowest interest rates. Five-year mortgage terms are the most popular and often the cheapest terms in Canada.
- Amortization period. The amortization period you choose will influence the overall length of time you have to repay your loan. This can affect the size of your loan payments and the number of terms you need to renew for. The most popular amortization period in Canada is 25 years.
- Down payment requirements. Aim to find a lender that offers a down payment option you can afford. Your best bet is to put a down payment of 20% on your loan since this will save you money on mortgages insurance in the long run. Be prepared to pay extra for insurance if you decide to go for a 5% to 15% down payment.
- Customer service. Search for a lender that has a solid reputation for offering high-quality customer service, even if this means accepting slightly higher rates. This will save you headaches when renegotiating your loan or switching to a new lender.
Ways to save money on your first-time home buyers’ mortgage
There are a few ways you can save money on your first-time home buyers’ mortgage. These include the following:
- Compare lenders. Compare as many lenders as you can to find the best rates and terms. It can be useful to use an online mortgage broker to help you make a quick comparison. You can also compare lenders on your own if you don’t mind putting in the extra leg work.
- Apply for first-time home buyers’ incentives. Look for special offers such as the RRSP Home Buyers’ Plan, the First-Time Home Buyer Incentive and the First-Time Home Buyers’ Tax Credit. These can save you money on buying your first home and on paying for incidentals such as taxes in the first year of home ownership.
- Put down a larger down payment. Aim to make a down payment of at least 20% of your mortgage. This requires more savings but you will allow you to skip purchasing mortgage insurance (which can save you thousands over a five-year term). Find out more about how to save for a house
- Ask your parents to cosign your mortgage. If your parents own their own property, they may be able to guarantee your home loan so you don’t need to worry about putting down a 20% deposit. Just make sure they understand that they risk losing their own home if you can’t make your mortgage payments.
First-time home buyer mortgage incentives
You can learn more about government incentives, such as the RRSP Home Buyers’ Plan and the First-Time Home Buyer Incentive, below:
RRSP Home Buyers’ Plan
The RRSP Home Buyers’ Plan lets you take money out of your RRSP as a first-time home buyer to buy or build a home for yourself or a family member with a disability. In 2019, the government set the RRSP first-time home buyer withdrawal limit at $35,000. As a couple buying your first home, you can borrow as much as $70,000 under the RRSP Home Buyers’ Plan.
Just be aware that the RRSP Home Buyers’ Plan requires you to repay any money you borrowed from your RRSP in 15 years or less. If you fail to repay your RRSP money in this time period, you’ll be taxed heavily on it.
The First-Time Home Buyer Incentive
If you’re a first-time buyer with a qualified annual income of $120,000 or less, you may be eligible for the First-Time Home Buyer Incentive, which is a shared-equity mortgage with the government of Canada. This incentive lets you share the risks and rewards of taking on a new mortgage
You can apply for up to 5% of the purchase price of your home with the First-Time Home Buyer Incentive in most cases. Within 25 years or when you sell, you repay 5% of the sale price to the government if you have equity in the home. If your sale price is lower than what you bought the house for, the government will reimburse you for 5% of the negative equity.
Tax perks for first-time home buyers
Besides the First-Time Home Buyer Incentive and the RRSP Home Buyers’ Plan, you can also take advantage of the following tax benefits as a first-time home buyer:
- First-Time Home Buyers’ (FTHB) Tax Credit.Claim up to $5,000 in tax credits on costs associated with purchasing your first home. Associated costs might include land transfer tax, legal fees or disbursements.
- GST/HST New Housing Rebate. You can qualify for a rebate to recover part of your GST or HST payments that you paid on the purchase price, on the cost of renovating or adding additions or on converting a non-residential property into a house.
How much can I borrow?
Enter information such as your household income, number of dependants and any existing debts you owe into our calculator. This calculator estimates your expenses using a standard cost-of-living index to give you a home cost that you should be able to afford:
There are a number of actions you can take to make the most out of being a first-time home buyer. Learn how to compare mortgages and find out what special offers and incentives you might be eligible for. In particular, learn more about the RRSP Home Buyers’ Plan and the First-Time Home Buyer Incentive as well as any tax credits you could be eligible for.
Frequently asked questions
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