Mortgage loan insurance

Mortgage loan insurance is typically required by lenders when a borrower is investing a down payment of less than 20% of the purchase price of the home. On one hand, this insurance protects lenders against borrowers defaulting on their payments. On the other hand, it enables borrowers to purchase a home, even with a down payment of only 5%, while benefiting from the same interest rates offered to buyers with a 20% down payment. This simple solution is offered through most financial institutions, and has enabled millions of people in the past to make their dream of owning their home come true.

Lenders pay a premium to obtain mortgage loan insurance. Your lender will likely ask you to reimburse this premium. You can do this in a single transaction or you can ask that it be added to the amount of the loan so that it will be included in your monthly payments

The amount of the premium varies according to the amount of the loan and of the down payment. The bigger the difference between the loan and the value of the property, the higher the percentage used to calculate the premium will be. If your mortgage loan is not insured, you won’t have to pay insurance premiums but you will likely pay higher interest rates and additional administrative fees. It follows that the cost of CMHC’s mortgage loan insurance is largely offset by the savings
achieved by most borrowers.

It should be noted that mortgage loan insurance and mortgage life insurance are two different things. The latter guarantees that your estate will not need to reimburse the balance of your mortgage on your death.

A 10% premium refund and extended amortization period without surcharge may be available when CMHC Mortgage Loan Insurance is used to finance an energy-efficient home.

To learn more about mortgage loan insurance visit the CMHC website
(www.cmhc-schl.gc.ca/).

First-Time Home Buyers’ Tax Credit (HBTC)

The Canada Economic Action Plan established in the 2009 the First-Time Home Buyer’s Tax Credit (HBTC), a non-refundable tax credit for a qualifying home purchased after January 27, 2009. The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit was therefore $750.

You will qualify for the HBTC if you, or your spouse or common-law partner, acquire a qualifying home, and if neither one owned a home and lived in it during the year of the acquisition or in any of the four preceding years. Either one of you can claim the credit. You can even share it, but your combined claims cannot exceed $750.

If you are a person with a disability or are buying a house for a related person with a disability, you do not have to be a first-time home buyer. However, the home must be acquired to enable the person with the disability to live in a more accessible dwelling or in an environment better suited to the personal needs and care of that person.

Most types of homes can qualify. However, you must intend to occupy the home or you must intend that the related person with a disability occupy the home as a principal place of residence no later than one year after you buy it.

You can claim the credit for the year during which you acquired the qualifying home by using line 369 in Schedule 1, Federal Tax, of the personal income tax return form. You should know that your eligibility to the HBTC does not affect your participation in the Home Buyer’s Plan (HBC).

To learn more about the First-Time Home Buyer’s Tax Credit dial 1 800 O Canada or visit the Canada Revenue Agency website (www.arc.gc.ca).

Extension of the Home Buyer’s Plan (HBP)

The Canadian Government has increased the HBP limit for authorized withdrawals from an RRSP from $20,000 to $25,000 as of January 27, 2009.

Only the person who is entitled to receive payments from the RRSP (the annuitant) can withdraw funds from the RRSP. You may withdraw funds from more than one RRSP but you must be the annuitant (the owner of the plan) in each case. The issuer of the RRSP will not withhold income tax on these amounts. Usually, you cannot withdraw funds from a locked-in RRSP.

To participate in the HBP, you must be considered a first-time home buyer or make a withdrawal to buy a home for a related person with a disability. urthermore, you must have entered into a written agreement (offer to purchase) to buy or build a qualifying home. This agreement can be signed with a builder, a developer, a contractor, a realtor or a private vendor. A preauthorized mortgage does not qualify as a written agreement.

You must intend to occupy the qualifying home as your principal place of residence and your HBP balance on January 1 of the year of the withdrawal has to be zero. There are other conditions, including the requirement that you or your spouse or common-law partner can own the qualifying home more than 30 days before a withdrawal is made. You must also be a resident of Canada and you have to buy or build the qualifying home before October 1 of the year after the year of the withdrawal.

If, during your participation in the plan, one of the conditions was not met, your withdrawal will no longer be eligible and you would need to add its amount to your income for that year. On the other hand, if you do not meet the conditions to participate in the HBP in the current year, you could participate in it during another year.

To learn more about the Home Buyer’s Plan, dial 1-800-O-Canada or visit the Canada Revenue Agency website (www.arc.gc.ca).

Source : SCHL, Agence du revenu du Canada, Jacques Beaulieu Consultant