On Thursday, Jan 12th – Bank of Montreal announced that it would lower it’s 5-year fixed mortgage rate to 2.99%. This is the lowest rate ever offered by a major bank in Canada’s history. Soon after, other major banks followed. The only catch is that you must choose a 25-year amortization as opposed to the maximum 30-year amortization. Which means you are paying more of your Principal loan amount instead of Interest. There are a couple other restrictions regarding prepayment (the amount you are allowed to pay in lump sump to get your principal loan amount down), but nothing major.

By promoting better financial decisions, and increased awareness – the banks are hoping that people will make responsible decisions and get into home ownership. I believe this is a great time to explore home ownership because it offers the safety of a fixed interest rate over the next 5 years. It eliminates the uncertainty some people have with variable mortgage rates, not the mention all the conflicting reports in the media and “doom and gloom” stories.

Here is a quick breakdown for a sample 1st-time homebuyer. Consider a home purchase price of $400,000:

(Please keep in mind these are estimates, they are pretty accurate but each situation will be different. The example below is for a freehold property. It would look different for a condominium)

Loan Amounts

Purchase Price $400,000
Downpayment (min. 5%) -$20,000
Plus 2.75% for CMHC Insurance – applicable to all mortgage loans where less than 35% downpayment +$9,500
Mortgage Amount $389,500

Cost of Acquisition (One-time costs)

Lawyer fees (approx)
Downpayment $20,000
Land Tranfer Tax + ($8,200 – $5,725) = $2,475
  • First time homebuyers are entitled to a Land Transfer Tax Rebate to a maximum of $5725 ($2000 Provincal + $3725 Municipal)
  • Municipal Land Transfer Tax (and rebate) only applies in the city of Toronto, you do not have to pay outside of the city. Only Provincial LTT applies.
Total One-Time Costs $23,675

Monthly Costs

Mortgage (Principal + Interest) $1,841
Property Taxes (approx) $165
Utilities (average) $300
Insurance (approx) $100
Maintenence – you may not need this every month, but just to be safe $100
TOTAL Monthly Costs $2,506

Here are some more articles on the subject, as well as some insight as to why the rates are lowering. Hint – it has to do with the rest of the world putting value on the Canadian Economy:

CTV (Video)
Wall Street Journal – Market Watch
National Post

If you have any questions, or are curious about a different scenario. Let me know, I can answer questions and help develop a budget estimate.

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