Planting Roots - The Realities Of Buying Your First Home
Purchasing your first home can be one of the most important financial decisions you will ever make. There are many things you need to consider when looking to put down roots – the two most obvious being where do you want to live, and can you afford it? Let’s walk through some of the key financial considerations of buying your first home.
Financing
The first stop is usually financing. How much can I afford, and what will a home purchase cost?
How much you can borrow to buy a home can vary based on the lender, your province of residence and the size of your down payment, so you should speak to a mortgage agent to confirm your options. As a baseline, many lenders will use “Debt Service Ratios” to determine how much you can afford. The Gross Debt Service (GDS) ratio looks at your housing costs (mortgage payment, property taxes, utilities, 50% of condo fees (if applicable) compared to your gross income and shows what percentage of your income goes to housing (which should be less than 39%). The Total Debt Service Ratio includes these elements plus other debts, and this should be less than 44%.
Federally regulated lenders require you to pass a stress test to prove you could still afford payments if interest rates rise. The Financial Consumer Agency of Canada has an online Mortgage Qualifier Tool1 that estimates how much you can borrow using debt-ratio rules.
Mortgage Insurance
If you want to buy a home with a down payment of less than 20%, you’re required to purchase CMHC mortgage loan insurance that gets bundled into the mortgage. This doesn’t protect you, but it protects your lender in case you default on payments. This is a totally unrecoverable cost and adds no value to your purchase, so, if possible, avoid CMHC insurance by putting 20% down.
Choosing Your Mortgage Payment
Amortization Length
First-time buyers and some new-build buyers with insured mortgages can choose a 30-year amortization, a recent increase from the previous 25-year maximum.
Reviewing an example, a $500,000 loan at 5% costs about $2,908 per month over 25 years, with about $372,000 in total interest. Increasing the amortization to 30 years lowers the payment to about $2,668 per month (around $240 less) but adds roughly $88,000 more interest overall. You should evaluate whether that reduction in monthly costs is worthwhile in the long run.
Variable Interest Rate Vs. Fixed
Fixed mortgage rates are higher than variable rates, so it can be tempting to select a variable rate. If interest rates stay low, you could do very well with this option. It’s important to note in Canada, even if your mortgage interest rate is fixed or variable, mortgage terms typically last 5 years. Unlike the United States, you won’t receive that fixed rate for the life of the loan. However, selecting a fixed-rate loan can make cash flow management easier and give you time to prepare if you expect interest rates to be higher upon renewal.
Some variable mortgages keep the payment amount the same even when rates change. This is called a fixed payment with a variable rate and can be risky. If rates rise, more of each payment goes toward interest instead of principal. The mortgage balance can stop shrinking or even grow, which may create problems when renewing the mortgage.
Payment Frequency
Paying more frequently can reduce interest slightly and help pay off the loan faster. If you’re able to make prepayments (check your prepayment privileges), then making lump-sum payments with a bonus, inheritance, or other source of funds can significantly reduce interest charges and help you pay down the loan more quickly.
“Accelerated” payments are a way of making the equivalent of one extra monthly payment per year. For example, if the monthly payment is $2,908, a typical biweekly payment would be $1,342. An “accelerated biweekly payment” would divide your monthly payment in 2, and charge that biweekly (so, $1,454). Using the same example, your total interest charges over the life of the loan would be $312,000, saving you $60,000 in interest. Therefore, accelerated options can be worthwhile.
Budget
Monthly Planned Expenses
- To plan your monthly housing budget, consider:
- Your mortgage payment.
- Utilities and heating costs. These will vary significantly based on the construction materials and age of the home.
- Property taxes. 1% of property value can be used as a rule of thumb, but it varies widely across Canada.
- Home insurance.
- A monthly maintenance fund. A reasonable amount which can vary widely based on the age of the home, the square footage, and whether you hire out or perform the work yourself2.
- Condo fees.
Condos And Stratas
If you buy a condo or strata, you’ll be required to pay monthly fees in addition to your mortgage and home expenses. These monthly fees may or may not be sufficient to cover major repairs required over time.
It’s recommended to review key condo/strata council documents like meeting minutes, the budget and, if possible, any engineer/consultant reports and depreciation report or reserve fund study3. You’re trying to determine whether major repairs are planned or already finished. Additionally, find out if there are special levies (extra fees) and whether any repair work already completed comes with a warranty.
If the unit you want is larger than others, you may have to pay a higher share of the building’s common expenses, so ensure you understand how common costs are divided.
Closing Costs
Closing costs typically range from 1.5% to 4% of the purchase price, not including the required down payment. Major closing items include the property transfer tax, GST/HST (if applicable), as well as appraisal, survey, and legal fees. Provincial programs may waive the property transfer tax if you’re a first-time home buyer, and the GST/HST new housing rebate can offer a refund of some of this tax.
Preventing Disasters
It’s smart to hire a building inspector to minimize the risk of unexpected, disastrous repairs.
If you hire a home inspector, remember that the inspection has limits and you should review any written disclaimers, particularly parts of the inspector’s contract that limit their liability. Inspectors usually check visible parts like the foundation, walls, roof, and chimney, but they may not be required to find hidden problems such as water leaks, condensation, or mould.
They also cannot inspect areas that are not easy to see or reach, like insulation inside walls, floors, attics, or crawlspaces. Review the home inspection association’s website4 to understand what inspectors must check and what they are not responsible for.
Not all provinces require home inspectors to be licensed. In provinces where licensing is not required, be sure to check credentials, ask for references, and seek an inspector who has received the Registered Home Inspector designation from the Canadian Association of Home and Property Inspectors.
Government Programs Available To Help With Buying A Home
Home Buyers Amount
This is a non-refundable federal tax credit of up to $10,000 that can help reduce the tax you owe in the year you buy a home. This credit could reduce your tax owing by ~$1,500 and can be claimed on your tax return, if you meet certain criteria5.
GST/HST New Housing Rebate
This government program allows you to recover some of the GST (or federal part of HST) paid on a new home, or a home that has been “substantially renovated”, if you meet specific criteria6. If you didn’t pay any GST/HST, this rebate wouldn’t apply.
First Home Savings Account (FHSA)
If you’re a first-time homebuyer (check the definition at Canada.ca), you can open one or more First Home Savings Accounts (FHSA) and contribute up to $8,000 per year to this type of account, with a lifetime contribution limit of $40,0007. If opening an FHSA for the first time in 2026, you’d be able to contribute the maximum over 5 years, maximizing the account by 2030.
FHSAs combine the best of both worlds, providing tax-deductibility (like RRSP contributions) and tax-free returns (like TFSAs) for first-time homebuyers. It’s worth noting that if your investment value grows, you may be able to withdraw more than $40,000. A couple, each with their own FHSA, could therefore save over $80,000, totally tax-free, for the purchase of a home.
Home Buyers' Plan (HBP)
The Home Buyers' Plan (HBP) is a program that allows you to withdraw from your Registered Retirement Savings Plans (RRSPs) to buy or build a home. The current HBP withdrawal limit is $60,000. Contributions to an RRSP are only allowed if you have RRSP contribution room (as listed on your most recent Notice of Assessment). Unlike the FHSA, the withdrawal amount is capped - if you contribute $60,000 to your RRSP, and the account grows to $70,000, you can still only withdraw $60,000 for the purchase of a home using the Homebuyers’ Plan. That’s not a bad thing, of course—the remaining $10,000 can continue to grow to be used for your retirement.
Note that the HBP rules require funds to have been deposited at least 90 days before withdrawal to be eligible, and strict repayment rules apply.
A little-known option is that if you contribute to a Spousal RRSP for a lower-income spouse, your spouse may be able to use the HBP to withdraw from their Spousal RRSP for the purchase of a home without attribution issues. This can effectively double the amount of RRSP funds you can withdraw for the purpose of buying a home.
Integrating The FHSA and HBP
You can integrate the use of the FHSA and HBP, offering a fantastic way to tax-efficiently save for a home purchase. If a couple withdrew $60,000 each from their RRSPs and $40,000 each from FHSAs, this would offer $200,000 of tax-preferred money available for a home purchase.
Family Tax Planning For Home Purchases
If you’re a parent or grandparent reading this and wondering how you can help your adult kids with the purchase of a home, you could consider contributing gifting them funds to contribute to their FHSA, RRSP, or TFSA without causing any attribution issues.
You may have funds invested in taxable investment accounts, and parents often have higher marginal tax rates than their young adult children of home-buying age. If you’re considering a gift of money for a home or an early inheritance, you could consider maximizing the use of their TFSAs, FHSAs, and even RRSPs. Maximizing these accounts can multiply the amount of tax-free or tax-preferred investments available as a family. Alternatively, gifting funds that are invested at their lower tax rates could offer more efficient after-tax returns than retaining the funds yourself. Of course, it’s important to consider how these ideas fit into your overall retirement plan and estate plan, and it’s important, as always, to consult with your lawyer and financial planner before making a significant gift to evaluate the pros and cons and ensure they’re implemented effectively.
Provincial Programs
Check your province about any provincial programs that can help improve home purchase affordability.
For more information, BC Housing’s “Buying a Home in British Columbia: A Consumer Protection Guide8” is a fantastic resource.
Hannah McVean is a Certified Financial Planner with Objective Financial Partners, a fee-only, advice-only financial planning firm in Canada. She works with clients from all walks of life and from all over the country, providing objective, unbiased financial advice. Hannah specializes in tax planning to improve cash flow and ensuring a seamless integration between the financial plan and the tax return.
1 Financial Consumer Agency of Canada > Mortgage Qualifier Tool. Note that at the time of this writing, the calculator is missing condo fees.
2 https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-this-is-how-much-you-should-expect-to-spend-on-home-maintenance/
3 In BC, this is a depreciation report. In Ontario, this is a reserve fund study.
4 https://www.cahpi.ca/en/
5 https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31270-home-buyers-amount.html
6 https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4028/gst-hst-new-housing-rebate.html
7 https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account/contributing-your-fhsa.html
8 https://www.bchousing.org/publications/Buying-A-Home-BC-Consumer-Protection-Guide.pdf