My Mortgage Advice For a First Time Homebuyer

As a new homeowner (a little over a month now), I figure that I would pass along the wisdom I gained in this transaction.

One tool available to first time homebuyers is the 1st time home buyers plan. Through this plan, the Canadian government allows new home buyers to withdraw up to $20,000 from their RSP without penalty. This money must be paid back to your RSP within 15 years. For those looking to come up with a downpayment ASAP, I definitely recommend utilizing this opportunity. When I graduated university and started working about two years ago, owning a home was a priority. As a result I started squirreling money into my RSP as quickly as possible. The tax returns that resulted from my RSP contributions were also put into my RSP. Its amazing how fast your savings can add up when you are disciplined.

Another option available to first time homebuyers is a spousal RSP contribution. If you are buying your home with your spouse, you can each withdraw $20,000. In my case, I had more than $20,000 saved for a house, buy my wife did not. My marginal tax rate was higher, so it made sense to apply my savings in addition to 20K to her RSP. In this case, that money applied towards her 20K limit, but I received the tax deduction.

Now that I had the money for my downpayment, I was ready to shop for a mortgage. During this process it became obvious that their are only two options: 1) ING 2)A mortgage broker.
When I first went shopping, a friend from work had a buddy who worked at TD. I was told he would "hook me up". I went in and was quoted his best rate. On a variable mortgage I was offered prime -.6% and 5.75% on a 5 year mortgage. Both much better than posted. I then went to a mortgage broker. They offered me prime -.8% for variable or 5.4% for fixed. My next stop was to ING, they matched the prime -.8% and did slightly better with 5.35%. ING had some terms that I liked, such as paying off up to 25% of the mortgage each year via a lump sum payment and the option to increase mortgage payments up to 25% each year. So in the end I went with ING.

A few weeks after closing my mortgage, the guy from TD called asking if I was still looking for a mortgage. I told him the rate I got though ING and his response told me I had made the right choice: "You got a great rate. That is probably the best rate I could have got you, but even then, my manager would have needed to approve and I wouldn't have received any commission".

THE MORAL:For those who don't have a friend at the bank, I highly doubt that you will be offered anything better than ING is posting. Especially on your first home purchase.

Hopefully this helps you in your house hunting.

Until next time.