First Time Buyers: Want to Withdraw RRSP Funds to Buy a House?
February 6th, 2008 Categories: First Time Buyers, Halton Real Estate, Mortgages, Economics, Finance, Oakville Real Estate News
Question: 
“Can I use my RRSP’s to buy a house?”
First Time Buyers often ask if they can use some of their RRSP money in the home purchase.
First let me say, now is a a wonderful time for first time buyers to purchase their first home.
Some recent posts on The Buzz discuss various factors iimpacting this decision including new Land Transfer Tax Rebate for first time buyers, an environment of declining interest rates, and a more balanced real estate market in the GTA/Halton area, versus the seller’s market of the last 7 years, all of which bode well for FTB in Ontario.
(See also a recent post on solid economic fundamentals in Canada, despite challenges in the U.S.)
The question of RRSP money being applied to home purchase has been asked me enough times to warrant mention here.
There are two categories of people who are eligible to withdraw RRSP funds (without tax penalty) for home purchase:
1) First Time Buyers
2) People with disabilities or relatives of people with disabilities who are helping them purchase
Some Pointers for RRSP withdrawal:
1) Must be a resident of Canada
2) Must occupy the home as principle residence
3) Have up to 30 days after closing to withdraw funds from your RRSP
2) Don’t need to use all the funds towards the down payment (money can be used for closing costs, home renos etc)
3) Allowed a maximum withdrawal of $20,000 per qualified home buyer
4) Have 15 years to repay RRSP, without tax implication
5) Revenue Canada helps keep accounting straight by providing a statement on the annual Notice of Assessment outlining repayment requirements.
More details on this can be found here on the Revenue Canada website.
IF YOU ARE A FIRST TIME BUYER, CONTACT HILARY 905–599–3311 FOR STEP-BY- STEP GUIDANCE, from financing, to market conditions to moving advice!
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Getting a Mortgage Today? Fixed or Variable Rate?
January 31st, 2008 Categories: First Time Buyers, Mortgages, Economics, Finance
The simple answer to this question is to go variable as more rate cuts by the Bank of Canada are anticipated in the next few months. (See my article last week explaining this.) Remember you can always lock in at a later date.
Just in case you’re new to all this stuff:
The discount rate is the interest rate that a bank is charged to borrow short-term funds directly from the central bank (Bank of Canada).
The prime rate is the interest rate that commercial banks charge their most credit-worthy customers.
Banks in the past would set their variable mortgage rate at 0.9% – 1.0% off prime. Not today. They are narrowing the discount so as to improve their profit margin on variable products.
I read an article in the Financial Post on the weekend which you might find interesting (reprinted below). 
BORIS’ READER’S DIGEST VERSION of Financial Post article:
1) The banks are not obligated to lower prime just because the B of C rate has fallen, although most likely they will.
2) With rates falling, the banks will recoup some of their losses by reducing the discount off prime that they give to borrowers.
Mortgage: To fix or to float?
Mortgage: To fix or to float?
Banks expected to get stingier with discounts
Would you borrow money from someone if they could change the rate of interest whenever they wanted to?
About 20% of Canadians signing up for new mortgages have been doing just that. One out of every five new mortgages is now a variable rate product tied to prime. Prime is dictated by your bank.
As rates tumbled during this housing cycle, consumers worried about locking into long-term mortgages. The fear of being shut out of the latest rate cut from the Bank of Canada had consumers looking to products with floating interest rates.
Generally, when the central bank cuts rates, your interest rate comes down. But as the global credit crisis has widened, one big question is whether the banks will continue to lower prime with every cut from the country’s central bank.
So far, the answer is a clear yes. The major banks went along with a 25 basis cut from the Bank of Canada this past week and lowered their prime lending rate for customers from 6% to 5.75%.
“The word on the street has been that maybe they wouldn’t drop,” says Don Lawby, chief executive of Century 21 Canada Ltd.
Whether the banks continue to pass on Bank of Canada cuts probably will not change demand for variable rate products, he predicts. One of the reasons he does not think consumers should or will panic is that they always have the option of locking in their rate on a variable rate product.
Most variable rate products sold by the banks include an option that allows you to fix your rate for the remaining term of your mortgage–albeit at a slightly higher rate than you might normally achieve if you did not have a mortgage contract.
“The issue will always be, ‘is the rate I can negotiate for one, two, three or five years better than my current variable rate or not?’ That’s the decision the consumer is going to make. If consumers think rates are going up, they lock in,” says Mr. Lawby.
But the truth is, floating rate mortgages have been rising for months but it has been happening in such a subtle way few people have noticed. A year ago, a consumer could borrow money at 90 basis points off prime. Anybody with that type of deal is now paying 4.85% interest based on the latest cut.
Unfortunately, if you are borrowing today, credit availability has tightened. As the banks’ costs have increased, their profits have narrowed. To deal with the shortfall they cut the discount offered to 50 basis points off prime.
Essentially, they have balked at the Bank of Canada rate cut by cutting the discount. That same variable rate mortgage today will be at 5.25% interest.
Given the shrinking discount and the uncertainty of the banks going along with future rate cuts, does it make sense to continue to have a floating interest rate on your mortgage?
Moshe Milvesky, a professor at York University’s Schulich School of Business, wrote the now widely disseminated study on whether it made sense to lock in your mortgage rate. In the study which looked at decades of interest data, he found consumers did better 88% of the time with a floating rate mortgage.
“It’s the other direction that worries me. If the Bank of Canada lowers rates and they raise prime or the banks arbitrarily raise prime … that’s more worrisome because of unpredictably,” says Mr. Milvesky.
He predicts the banks will probably just get stingier with the discounts they offer rather than not passing along Bank of Canada rate cuts. They can knock the discount down to 10 basis points and few people will get upset, says Mr. Milvesky.
Ultimately, he does not see a sudden rush to fixed rate mortgages but it will open the eyes of consumers. “It makes them aware of the fact that it is the bank that controls their interest rate, not the Bank of Canada,” says Mr. Milvesky.
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Canadian Interest Rates Anticipated to Go Down Further/No Cause for Alarm for Canadian Home Prices
January 24th, 2008 Categories: First Time Buyers, Latest Real Estate Market News & Stats, Mortgages, Economics, Finance, Real Estate News
Canadian Interest Rates To Fall Further
As world stock markets roil and the spotlight turns on U.S. Fed Chairman Bernanke to follow up Tuesday’s sharp 75 basis point rate cut with another cut next week, Canadians are wondering what will happen to interest rates here at home.
Last week I was hearing rumors that even if the Bank of Canada were to cut rates, some or all of the major Canadian banks might break precedent and not follow suit. However the relatively more conservative 1/4 point cut in rates this week by the Bank of Canada did result in all major banks reducing their rates accordingly, impacting mortgage rates.
The Bank of Canada has communicated that they are prepared to cut rates further. A communique I read today from the Toronto Dominion Bank Financial Group said we can anticipate a further 50 basis point (1/2%) rate reduction on March 4th with the potential of another 25 basis point cut on April 22nd.
This is good news for homebuyers.
Canadian Home Prices: No Cause for Alarm
The TD communique also indicated that despite tighter credit conditions, strength in domestic demand is expected to remain supported by continued income growth associated with increases in commodity prices since October, which has led to further gains in our terms of trade.
With respect to Canadian home prices, and the rationale for their 50 basis point prediction I quote from today’s TD report:
Home prices remain on the upswing in most major urban centers, and there is little concern that the Canadian housing market will start to mirror the slump in the U.S. In fact, we believe national home prices will rise at a rate of 5-7% in 2008, compared to a U.S. market that will likely absorb losses of around 5% or more. However, we believe that by the next meeting (i.e March 4th), data on the U.S. economy will provide a smoking gun, showing clear signs of a sharp economic slowdown. Given that inflationary pressures remain well in hand, a 50 basis point cut would provide much-needed insurance against the degree to which a U.S. economic downturn would lap onto Canadian shores.
Certainly, inflation will not provide a barrier to a more aggressive Bank of Canada. The central bank has indicated that increased competitive pressures in the retail sector and the one percentage point GST cut at the start of the year will cause both core and total CPI inflation to fall below 1.5% by the middle of this year before returning to their 2% target by the end of 2009.
Looking to buy or sell? Call Hilary at 905–599–3311 or click here to contact Hilary for more market information.
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Buying Your First Home? New Ontario Land Transfer Tax Rebate Puts Money in Your Pocket
December 14th, 2007 Categories: First Time Buyers, Oakville Real Estate News, Real Estate News
Today I went to visit a young couple in their new home. They were very happy to have their very own home after renting for years.
So I was glad to read the good news today that first time buyers in Ontario will find it just a little bit easier to get into the market.
Effective today, the Ontario government is giving all first-time home buyers a break on land transfer tax by expanding the Land Transfer Tax Refund Program to include purchases of resale homes.
Ontario Finance Minister Dwight Duncan announced that first-time buyers of resale homes, as well as newly constructed homes, would be eligible for a refund from the provincial government of up to $2,000 of the Land Transfer Tax paid.
The expanded Land Transfer Tax Refund Program for First-time Home buyers is part of a package of new tax initiatives that are expected to provide $1.4 billion in provincial tax relief for business and people over three years.
“The government is making strategic investments in people, communities and infrastructure to strengthen Ontario’s economic advantage and help manufacturers and other sectors challenged by current economic conditions” said the press release issued yesterday.
If you are a first-time home buyer in Oakville, Burlington, Mississauga, Milton, Etobicoke or Georgetown, call Hilary to guide you through the process.
Note, I’ve been getting inquiries requesting more details about this rebate so here are the practicalities:
- Enter into the Agreement of Purchase and Sale after December 13, 2007 (December 14th or later). The date that you entered into the Agreement of Purchase and Sale is considered to be the date at the top of page 1 of the Agreement, NOT the date that all the conditions were fulfilled.
- The rebate hasn’t passed through legislation yet, it’s just a proposal – Passing through legislation takes 1-6 months usually – However, an affidavit is going to be released Friday Dec 14th or Monday December 17th to allow purchasers to apply for the refund, so the likelihood of approval through legislation is pretty good.
- You are allowed up to 18 months from closing to apply for the refund.
- You have to pay the LTT on closing and then apply for the refund thereafter.
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First Home in Burlington, Congratulations Kevin and Barbara!
September 17th, 2007 Categories: Burlington Beat, Client Stories and Testimonials, First Time Buyers, Oakville Real Estate News, Real Estate News
When people purchase their first home, it’s like having their first child. It’s scary, exciting, they have a lot of questions, and value advice of trusted professionals and other friends who’ve been through it.
Brian Harvey, an Oakville renovator, referred Kevin and Barbara to me. We saw the home in the morning and put in an offer without delay that afternoon. There were multiple offers but we won out!
I like the town house you chose, with its private backyard and Engelman’s ivy growing on the back fence. We met a few of the neighbours and they all seem nice and have lived there a long time. The home inspector gave it “above average condition” rating. We could see it was good value for the price.
Kevin and Barbara, you were fun to work with and I am pleased that you can look forward to moving into your very own home before Christmas! I will come by to visit and have some eggnog!
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