Looking for the perfect mortgage? Government help

Canada Mortgage and Housing Corporation (CMHC)

There are a number programs offered by CMHC that are pertinent to the housing and mortgage markets and that may be useful to the homeowner or buyer. There are other available in the industry but the following are the most relevant to a discussion on mortgages. CMHC offers:

This program is beneficial to those with a High Ratio mortgage as previously discussed.

Second Mortgage Insurance has been offered to financial institutions since 1987 however, very few people take advantage of probably the second most worthwhile program that the CMHC offers. Normally, second mortgages are offered at a slightly higher rate of interest than first mortgages. The reason for this, according to lenders, is that they are taking on more risk by lending beyond 75 to 90 per cent of the value of your home.

What lenders neglect to mention to those considering a second mortgage is that for payment of an insurance premium of between 1 and 2.5 per cent (depending on the Loan To Value ratio), lenders can buy second mortgage insurance which is paid for by the borrower. It is not surprise that lenders are not enamoured with the program because they would rather charge the higher rate of interest on the second mortgage than have you pay the CMHC an insurance premium every month.

Residential Rehabilitation Assistance Program (RRAP)

This program is designed to assist low income homeowners in undertaking necessary repairs to their homes. Depending on the homeowner's level of income, the program provides loans that may or may not have to be paid back to assist in the repairs to their home. There is also a Residential Rehabilitation Assistance Program (RRAP) for people with disabilities as well as for landlords of low income housing units.

Emergency Repair Program (ERP)

This program is designed to assist rural area homeowners to undertake emergency repairs to their homes for continued safe occupancy.

We now know that one of the first steps on the road to purchasing a home is to save money for the down payment. If you are at this stage, the Ontario Home Ownership Plan (OHOSP) may be of benefit to you.

OHOSP is a savings vehicle designed by the Ontario government for individuals with incomes of less than $40,000 per year and couples with a combined household income of less than $80,000. It allows you to make contributions to be used for a home down payment and provides a tax credit as incentive based on the income of the individual or couple contributing as well as the amount of the contribution. The maximum tax credits range from $500 for individuals to $1,000 for couples.

Although there is no limit to the amount that can be contributed to an OHOSP, in order to receive the OHOSP tax credit, you must not contribute more than $2,000 per year per individual and $4,000 per couple. Those contributing to an OHOSP are eligible for the applicable tax credit for five consecutive years. The OHOSP must be closed and the funds must be used to purchase a home by the end of the seventh year.

Should you decide to close the OHOSP but not to use the funds to buy a home, you will not be eligible for the tax credit for that year and you must repay the tax credits that you have received. The financial institution that holds your OHOSP will forward 75% of the contents of you plan to you and the balance of the money will be forwarded to the Ministry of Finance to fund the tax credit recovery. Any funds that remain when this has been completed will be sent to you with interest.

Of course, an OHOSP should not be your only source of savings to put together your down payment. If you plan to live in a city like Toronto, even the highest possible tax credit eligible contribution ($20,000) will not likely be a sufficient down payment for an apartment condominium.

The Home Buyers Plan

This plan involves borrowing money from your RRSP to be used toward the purchase of a home. The RRSP withdrawal is made on a tax-free basis and each qualifying individual can withdraw up to $20,000 dependent on the amount of funds available in the RRSP. Any withdrawals made from an RRSP under the Home Buyers' Plan must be repaid within 15 years. It is generally paid back in yearly installments over the 15 year period however, if you fail to pay your installment, it must be included as income on your tax return for that year.

When you participate in the Home Buyers Plan in a particular year, you must buy or build the qualifying home before October 1 of the year following the withdrawal. If you fail to do this before the specified date, you can withdraw your participation in the Home Buyers' Plan and return the money to an RRSP or buy or build a different home, referred to as a "replacement property", by October 1 of the year following the year of the withdrawal.

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