For many potential homeowners, the biggest hurdle to getting a mortgage is coming up with the down payment. In Canada, the minimum down payment for a home can range from 5–20%, depending on the purchase price of the home. While saving for a down payment can be challenging, there are a few options to consider that can make it easier.
1. Borrow from Your RRSP
If you have a Registered Retirement Savings Plan (RRSP), you can borrow up to 20% of the purchase price of your home under the Home Buyer’s Plan (HBP). The HBP allows you to withdraw up to $25,000 (or $50,000 for a couple) from your RRSPs to help finance the purchase of your home. You can then repay the RRSP over the next 15 years.
2. Borrow From Your TFSA
Similar to the HBP, you can also access money from your Tax-Free Savings Account (TFSA) to help finance your down payment. The TFSA allows you to withdraw up to $20,000 from your TFSA without any tax implications. This is a great option for those who need a little extra help in raising the down payment for their home.
3. Mortgage Default Insurance
For those who don’t have the 20% down payment, mortgage default insurance can help. Mortgage default insurance is required when you make a down payment of less than 20%. It covers the lender in the event that you default on your mortgage payments. The cost of mortgage default insurance is typically around 2.5–4% of the purchase price.
4. Family Gifts
Another option is to receive a gift from family members to help finance your down payment. In Canada, a family member can give you up to $15,000 without triggering any tax implications. This can be a great way to get the down payment you need without having to take out a loan or tap into your savings.
5. No Down Payment Mortgages
Finally, if you don’t have the funds for a down payment, there are a few lenders who offer no down payment mortgages. These mortgages are generally offered to those with good credit and a steady income. However, they typically come with higher interest rates and the lender may require you to purchase mortgage default insurance.
Saving for a down payment can be a daunting task. However, there are a few options that can help make it easier. From borrowing from your RRSP or TFSA to no down payment mortgages, there are a variety of options to consider. Be sure to research all of your options and consult with a financial professional to ensure you make the best decision for your situation.