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While purchasing a home is a popular option or goal, with close to two-thirds of Canadians households owning their home1 it’s not a decision to be taken lightly. Beyond the purchase price, there are a number of costs associated with buying and owning a home. A first-time homebuyer who’s considering the downpayment and regular mortgage payments would also want to plan for the following costs of home ownership:
- legal fees;
- land transfer tax (where applicable);
- annual property tax;
- strata fees (where applicable);
- home insurance;
- disability and life insurance;
- repair and maintenance costs;
- utilities; and
- mortgage default insurance (required when the downpayment is less than 20 percent of the purchase price).
Note: This list is non-exhaustive and includes a selection of additional or common costs associated with home ownership.
A home purchase with a downpayment of less than 20 percent of the purchase price is called a high-ratio mortgage. High-ratio mortgages are at an increased risk of default, which is a situation where the buyer is unable to make their mortgage payments. Mortgage default insurance covers this risk. The premium for mortgage default insurance is often added into the mortgage payment.
You can save the money you need to buy a house, but most first-time homebuyers will make a downpayment and take out a mortgage. A downpayment is a lump sum of money you put towards the purchase of a home, at the time of the purchase. A mortgage is a loan to cover the remainder of the purchase price. A mortgage is also classified as a secured loan because the property provides collateral, or security, for the loan.
At minimum, a homebuyer needs a downpayment of at least 5 percent of the purchase price, when the home is priced under $500,000. For homes priced over $500,000, the downpayment required is 5 percent of the first $500,000 and 10 percent for the portion above $500,000. When the home has a purchase price over $1,000,000, the downpayment must be at least 20 percent. There are several government programs and incentives to help first-time homebuyers achieve the goal of purchasing their own home.
For more information on your first home purchase, savings programs and planning options, contact us today.
Interested in learning more? Check out these related resources:
- How to help children with a first-time home purchase without compromising your own financial future
- Makin' It Work: Three Real-Life Homebuying Stories
- FHSA: 9 Questions answered about the new First Home Savings Account
- FCAC Buying a home - programs and incentives
- Statistics Canada Census of Population. The Daily. “To buy or rent: The housing market continues to be reshaped by several factors as Canadians search for an affordable place to call home.” (Released September 21, 2022) https://www150.statcan.gc.ca/n1/daily-quotidien/220921/dq220921b-eng.html
This information has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and certain divisions of the Royal Bank of Canada. *Member-Canadian Investor Protection Fund. Each of the Companies and the Royal Bank of Canada are separate corporate entities which are affiliated. This information is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2023. All rights reserved.