Advice to a young couple looking for their first mortgage

You asked about using the Home Buyers’ Plan (HBP), which allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) to be used towards the purchase or construction of a home that you intend to occupy as your principal place of residence. The limit was increased from $25,000 in the federal budget for withdrawals taking place after March 19, 2019.

If, in the past four years, neither you nor your common-law partner occupied a home that you or your common-law partner owned, you can both qualify for the HBP. That means you can access up to $70,000 combined. Your father’s part ownership would not limit your participation in the HBP.

You and your common-law partner may also both qualify for the principal residence exemption so that any growth in the value of the property from when you purchase it to when you sell it is tax-free. The fact that your father is a co-owner will not impact your ability to claim the principal residence exemption for your share, Irene, though your father may have to pay tax on his share of any appreciation when you decide to sell the home or buy out his share.

As for whether to use an alternative lender: That is a personal choice. I find people can be reluctant to borrow from a non-bank lender; personally, I’d be more worried about giving my money to a small financial institution than borrowing money from one. If you deposit money with a small financial institution, they have your money. If you borrow money, you have theirs.

With any lender, you need to make sure you’re comfortable with the terms of the mortgage and you may need to give up something in exchange for the lower rate. For example, you may have restrictions on prepaying the mortgage, or porting the mortgage to a new home.

One final consideration, Irene, is making sure you and your partner can afford this home on an ongoing basis. The help from your father to buy one-third upfront is great, but you should make sure the mortgage payments, property taxes, utilities and other carrying costs are within your budget so you don’t get in over your head.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

If you have a question for Jason, please send it to [email protected]

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