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Buying Homes Today

Posted by Patrick Galesloot on Monday, October 28, 2019 4:30pm

"How do kids today afford to buy a home with the prices the way they are?"

They benefit from a number of programs and benefits today.  Anyone can buy a home with as little as 5% down these days.  First time home buyers (kids) can take advantage of a number of programs the Government of Canada through CMHC has rolled out to make homeownership more affordable.  Heck, kids, today may have it better off than we did, or their grandparents etc.

The programs can be found here.

  • First Time Home Buyer Incentive.
    • If a first time home buyer has the minimum down payment, this program is a shared equity program where the Government of Canada will finance a portion of the home purchase.  ie If you have 5% down they can match your 5%.  The benefit of this program means your mortgaging 90% of the purchase price versus 95%.  
  • First-Time Home Buyers' (FTHB) tax credit.
    • First introduced in 2009 income tax credit represents up to $750 if tax relief.  Next time you file your taxes you could claim up to $5,000 for the purchase of a qualifying home and get a tax credit.
  • Home Buyers' Plan (HBP)
    • This is the RRSP down payment program that has been around for quite some time now.  It allows home buyers to withdraw up to $35,000 from their RRSP accounts.  Normally RRSP withdrawals are subject to income tax.  This program allows you to save over time and use those savings to buy a home so long as you pay it back you can dip into those RRSP's without a tax penalty.
  • GST/HST New Housing Rebate
    • You thought the GST was different on New Homes versus a new car?  Well sort of.  Many builders incorporate the GST rebate in their pricing models to keep prices affordable. This applies to homes priced under $450,000.

"Still it's so expensive for kids even with all of that!"

Fortunately, interest rates have been very favourable to homeownership.  Today 3 or 4% interest rates are quite common for mortgages, and some lenders may be offering less than that.  This is far lower than the interest rates home buyers endured in the good old days of the 1980s.  Back then rates soared to double-digit levels that we only see on credit cards today. Imagine what 18% interest rates would be like today on a $350,000 home.

$350,000 purchase with 5% down would mean financing 95% or $332,500.  (doesn't include CMHC insurance premiums).  The monthly mortgage payment would be $4,875.71.  Compare that to 3.5% today, the monthly payment would only be $1,660.07.  Sure the savings amount for % down seems large and daunting, but compared to what home buyers had to pay in interest, the home prices in our area are in line with income levels today.

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