If you want to buy a home, the first thing you will need to do is save up for a down payment. With the high cost of a home, this can be a difficult task for many Canadians, especially for first-time homebuyers who are younger and less established financially. In order to help ease the transition into homeownership, the government has created programs to help new home buyers achieve their dream easier. One such program is the Home Buyer's Plan.

Let's take a look at this program, how it works, who is eligible, and how it can benefit you.

What is the Home Buyers’ Plan (HBP)?

The Home Buyers’ Plan is a program that allows first-time homebuyers to withdraw an amount from their RRSP, tax-free, to put towards buying a home. The Home Buyer's Plan was first created almost 30 years ago in February of 1992 by the government of then Prime Minister Brian Mulroney, showing that Canadian home affordability has been a concern for a long time.

In order to keep in line with a changing market, the amount able to be withdrawn under the HBP has changed over the years. Initially, it was only $15,000 but was later raised to $25,000, and later to $35,000.

What is a Registered Retirement Savings Plan?

Registered Retirement Savings Plans, also known as RRSPs, is a type of account designed to help Canadians save for retirement. The RRSP account was first introduced in 1957 and has been popular with Canadians since then. A Canadian resident may open an RRSP and may contribute a set amount per year. This amount is then tax-deductible, saving you money on your yearly income taxes.

Any income generated by the account, such as through stocks or bonds, is not taxed. Withdrawals from an RRSP are taxed as income, unless under special circumstances like the Home Buyer's Plan. At the age of 71, any Canadians’ RRSP must be converted to a registered retirement income fund (RRIF).

How can I use the Home Buyers' Plan for my down payment?

Officially, the Home Buyers' Plan allows you to withdraw money from your RRSP savings in order to "buy or build a qualifying house". In practice, the most common use is to withdraw for the purpose of a down payment. Both the buyer and a spouse or common-law partner may withdraw $35,000 resulting in a total possible $70,000.

However, this is not a free withdrawal. First of all, you need to actually have $35,000 in your RRSP, which for anyone struggling to save for a down payment is already unrealistic enough. Further, you will be required to pay back this withdrawal over a set period of time. Finally, you are withdrawing against your retirement funds, which may be okay for someone earlier in life, but should be carefully considered as someone who is closer to retirement age.

Do I qualify for the Home Buyers' Plan?

The HBP is intended for first-time homebuyers, which the Canada Revenue Agency defines as someone who has not owned or occupied a home owned by themselves or their spouse in the last four years. This means technically you can be a first-time homebuyer if you have owned a house before, and that you can actually claim the HBP more than once in your life. You must also intend to live in the home as your principal residence within one year of making the purchase.

There are two other cases in which you may be eligible for the HBP. The first is if you are buying or building a home on behalf of, or to assist, a relative with a disability. The other way you may be eligible is if you have experienced a breakdown in the relationship with your spouse or common-law partner resulting in you no longer owning a home or living in your spouse's home.

Conditions for all three of these eligibility requirements can be complicated, so be sure to consult the government website on the topic or talk to a financial advisor before withdrawing anything from your RRSP.

How do withdrawals work?

You may withdraw any amount up to $35,000 and you may make this withdrawal all at once, or in a series of withdrawals in the same calendar year. In order to withdraw funds from your RRSP account, they must have been contributed more than 90 days prior to the contribution. In addition, in order to ensure you do not pay taxes on your RRSP withdrawal, you must fill out a T1036 form in order to request to withdraw from your RRSP.

How do repayments work?

Once you withdraw funds under the HBP you have two years in which you do not have to make any payments towards your loan. Following that two-year period, the loan must be repaid over a period of 15 years. You may repay any amount towards your HBP withdrawal at any time, including in the two-year period before scheduled payments are set to begin.

You will be required each year to contribute a minimum amount into your RRSP to go towards your HBP. This minimum is based upon the total remaining balance, divided by the number of years remaining. If you took out the maximum amount and paid the minimum contributions, you would pay about $2,300 per year or $195 in monthly payments. Any amounts that are contributed towards repaying your HBP will not count towards your total yearly RRSP contribution amount.

What if you fail to make payments for your HBP?

If you fail to make payments according to the dates of your repayment schedule, the amount will still be removed from your owed balance, however, the unpaid amount will simply be taxed as RRSP income on your yearly taxes as if it were a regular withdrawal.

While researching all that there is to know about mortgages, you might have come across the concept of debt service ratio (DSR). Debt service ratio is one of those fun financial terms that gets thrown around often with no real explanation of what it means. Fear not, because debt service ratios are actually not too difficult to get your head around.

It's important that you understand what your ratios are and how to calculate them because they are convenient indicators for your financial condition. They are also an important indicator that a lender will use to determine your mortgage loan terms and are an important factor in the mortgage stress test. For anyone looking to buy a home, this is a must-know.

What is a debt service ratio?

Debt service ratio is essentially the ratio between your income and your debt payments. This ratio is important because it’s a simple way to measure how effectively you can handle your debt payments based on your income. Your ratio is usually expressed as a percentage. For example, a ratio of 20% means that your annual debt payments make up 20% of your annual gross income.

It’s worth remembering that your debt ratios are calculated using your gross income, that is, income before deductions and taxes. That means that the percentage of your gross income that you want to put towards housing may be 20%, but in terms of actual disposable income, it will represent a larger percentage of your available funds.

What are the types of service ratios?

Your debt ratio is not actually a single figure. Rather, there are two major types of ratio, the gross debt service ratio (GDS) and the total debt service ratio (TDS). These measures are similar but have slight differences that make them useful in different situations.

Gross debt service ratio (GDS)

Your gross debt service ratio represents the ratio between your housing expenses and your gross income. Housing costs consist of your mortgage payments as well as monthly property tax payments, heating bills, half of your condo fee if applicable, and any other housing-related fees.

In order to calculate your gross debt service ratio for a house you don't own yet, you will need to calculate estimates for the various figures. Once you have your estimates simply divide these by your monthly gross (before tax) income. You can also use this calculation in reverse by dividing your income by a target GDS percentage. This will give you an idea of what sort of debt payments you can afford with your income.

Total debt service ratio (TDS)

Your total debt service ratio represents the ratio between all of your monthly debt payments, including housing, and your gross income. In addition to the housing costs from above, your total debt service ratio also accounts for any monthly debt payments you have such as credit card bills, car payments, line of credit payments, and more.

The calculation for the total debt service is essentially the same as for the gross debt service ratio once you include all additional debt payments.

Is rental income counted for debt service ratios?

If you already have rental income and are looking to buy another property, this net rental income will be included in your debt service ratios when applying for a new mortgage.

If you are applying for a mortgage on a rental property, you will only be allowed to include up to 50% of the potential gross rental income from the property as income for the purpose of calculating your debt service ratios. The one exception is if you plan to live in one of the units of a multi-unit rental as your primary residence. In which case, you may include 100% of the gross rental income towards your ratios.

Why do debt service ratios matter?

Debt service ratio is most important because it will play a role in determining your mortgage. Naturally, there is an upper limit on what monthly mortgage payments you can afford based on your monthly income. However, mortgage lenders will not let you spread your money too thin.

The Canada Mortgage and Housing Corporation (CMHC) sets limits on how high debt ratios can be in order to be eligible for a mortgage loan. Much like the mortgage stress test, the idea behind this choice is to prevent borrowers from taking on mortgages that they can not afford to maintain. The CMHC also puts a limit on debt ratio for borrowers looking to acquire mortgage default insurance.

If your debt ratio is too high, you will need to reduce it to a point below the maximums in order to be eligible for a mortgage. Otherwise, you will need to borrow from a private lender who does not observe the CMHC restrictions.

For GDS, the CMHC has a hard limit of 39%. Most banks try to keep their borrowers below 32% and will only offer loans at higher debt ratios in specific circumstances such as with a high down payment, good credit score, or valuable assets.

For TDS, the CMHC has a limit of 44%, though most banks will prefer a borrower to stay lower than 42% for mortgages.

The first time you bought something as a child and had to pay an unexpected sales tax, you probably quickly learned that prices are not always what they seem. Many adults run into the same problem when they decide to sign onto a mortgage and are faced with their mortgage interest rate. Mortgages cost hundreds of thousands of dollars and by comparison, interest rates seem so minuscule.

Consider, however, that interest is the primary money-maker for banks, so perhaps that minuscule figure is not so small after all. Indeed, over the many years of a mortgage, you will end up paying far more than the listed sale price of your home in mortgage interest, gradually paid along with the principal in your mortgage payments.

One thing most people don't learn as children is mortgage interest calculations. Most people have to learn the somewhat complex math behind the interest in a short time before signing their mortgage or choose to never learn it at all and trust their lender to do the math.

In reality, you don't need to know the complete mathematics of interest calculations, but it is helpful to understand exactly how interest payments work and how they’re calculated, especially before you sign on to a decades-long mortgage.

In this article, we will cover for you the basics of where your mortgage interest rate comes from, and how that interest rate affects how much you pay.

What is mortgage interest?

Mortgage interest is the amount you pay to the bank in return for getting to borrow their money for a period of time. When you pay your monthly mortgage payments, you not only pay for the price of your home but also for the mortgage interest that your bank charges based on an interest rate set by the bank and agreed to before the start of the mortgage term. Your mortgage interest rate can change at the end of your mortgage term, at the soonest, or even more often for a variable-rate mortgage.

How do banks decide interest rates?

So, you shopped around your mortgage and found that many of the lenders you looked at offered a similar interest rate. You wonder: if the banks make up their interest rates, why don't they just give me a lower rate? In theory, they could. Banks are such huge institutions that a single mortgage at a low rate probably wouldn't hurt them very much.

However, if you got a low rate, everyone else would expect one too. The banks manage hundreds of thousands of mortgages and they need to accommodate for the average risk of all of those thousands of mortgages. Therefore, your rate must be a certain amount.

There are also other factors beyond risk assessment that help a bank decide where to set interest rates. First of all, banks themselves pay interest rates. One rate, the bank of Canada prime rate, is the rate that banks and the government charge when lending between each other, which surprisingly happens almost every day! Your bank would simply lose money if they offered rates below the rate at which they pay for their borrowed money.

Beyond that, banks are businesses meaning they have to keep up their operating costs, pay their employees, pay for their properties, and more. Not to mention, they want to keep their profits up. The CEOs have got to get their $10 million dollar salaries somehow!

How is my rate determined?

Your mortgage lender will offer you a rate based on a number of factors. In general, they will take into consideration things such as:

• The value of the property you are buying
• The amount of your down payment
• Your income and credit score
• The term of the loan and the amortization period
• Whether or not your mortgage is fixed or variable rate.
   

Everyone's particular deal they reach with their lender will be different. You can help yourself get a more favourable rate by saving a higher down payment, having a higher credit score, taking on a variable rate, and more. Regardless, your bank will not offer you a mortgage you are unable to realistically pay, but how easily and how quickly you can pay it back will vary.

How is mortgage interest compounded?: Canada

Compounding is where the calculation of your mortgage payments can get complicated. Most mortgages in Canada are compounding, but the type of compounding can vary. For fixed-rate mortgages, Canadian law dictates that they compound semi-annually.

Compounding essentially means that your mortgage interest rate is divided over a number of periods and interest is paid on the value remaining from the previous period, which includes the principal plus interest. For example, a mortgage of 5% compounded semi-annually is better understood as a 2.5% interest twice a year. Due to compounding, the actual interest rate, or the effective rate, is closer to 5.06%, higher than your quoted 5%. The shorter your compounding period, the higher your effective interest rate will be, and compounded interest will make up a larger amount of your monthly payment.

This gets even more complicated as you are probably paying down your mortgage in monthly mortgage payments, meaning the values used for interest calculations are changing all the time. With a fixed payment amount, you will also be paying a different ratio of principal and interest for each of your mortgage payments.

Fixed-rate mortgages vs. variable-rate mortgages

There are two major types of mortgages available from lenders. The first is a fixed-rate mortgage. In a fixed-rate mortgage, you agree to a set mortgage interest rate at the beginning of your mortgage term and keep that rate through the term. Fixed-rate mortgages are always compounded semi-annually.

Because a fixed-rate mortgage is locked in, the bank takes on some risk by betting against any significant changes in rates during the term of your mortgage. Because of this, banks will usually charge a larger mortgage interest rate on fixed-rate mortgages. In return, the borrower gets the consistency and peace of mind of a set rate.

The other option is variable-rate mortgages. A variable rate mortgage starts with one rate, but the rate is subject to change as the bank’s variable rate adjusts to market conditions. This means that this loan is riskier for the borrower if interest rates rise, but they also often have much lower rates than fixed mortgages. However, unlike fixed mortgages, variable-rate mortgages are not required to be compounded semiannually, this means you can end up paying a higher interest rate than it may seem at first, for example, if your loan is compounded monthly.

Mortgage Principal

Mortgage principal is the amount of the loan that you still have to make mortgage payments towards. Lenders can only charge interest on the money you actually owe them so your interest payment should gradually decrease as you pay down your mortgage.

This means you will pay by far the most interest in the earlier years of your mortgage, and less in the later years. This is also why making a larger down payment can help you save on your mortgage. The more you put down initially, the less principal you have to pay interest on.

How much will interest cost me?

If you are looking to finance a home, or are budgeting to buy a home, it is helpful to know the actual cost of your home after interest. By calculating this amount you can know the actual cost of your mortgage, and how much additional money you will be paying in mortgage interest payments. It is not uncommon for your cost at the end of your mortgage to be 20 - 30% higher than your home's sale price.

Calculating monthly payments

To calculate the interest payment for one of your monthly payments, you need to start with your principal and your interest rate as a monthly figure. Your monthly rate is not the same as your interest rate, but rather is the interest rate divided by the payment period.

For example, if your mortgage has a 5% yearly interest rate and you pay monthly you need to divide that rate by 12. Your monthly interest rate will be about 0.41%. Multiplying the principal by this amount will give you the monthly interest. Adding that interest amount to the principal and subtracting your monthly payment amount will give you the starting monthly principal for next month's interest calculation.

For a variable rate, you will need to determine your current mortgage rate before following the above calculations. These can change often, so make sure you are using the most recent number for your calculations.

Calculating interest across all mortgage payments

Calculating the total value of interest paid over your loan can be complicated, especially as interest rates may change between mortgage terms and the ratio between interest and principal payments shifts over the life of your mortgage. Generally, your lender will be doing all this math for you, and they are very competent when it comes to these calculations. If you notice anything out of place, however, it can be worthwhile to ask your lender about their calculations.

For the average person, it is recommended to use one of many mortgage or interest calculators on the internet. These automated tools allow you to enter your mortgage information and receive accurate results immediately. This will save you from any potential mistakes you would have made if you did the math yourself, as well as save you the headache of having to go through the whole process.

For a more detailed view, you can also prepare an amortization schedule, or find a tool that will put it together for you. An amortization schedule is a way of displaying the information on mortgage payments through the life of the mortgage. It can show you how much your loan principal will be at a given time, as well as how much of each payment goes towards principal vs interest.

When it comes to mortgages, it is easy to focus on the rates and your current situation, but the reality is that life happens and when it does, rates won’t be the only thing that matter.

At the end of the day, a mortgage is a contract between you (the homeowner) and the bank. As such, there are often penalties involved if the contract is ever broken. This is something that every homeowner agrees to when you sign mortgage paperwork, but it can be easy to forget - until you’re paying the price. These things do happen as approximately 6 out of 10 mortgages in Canada are broken within 3 years. Should your circumstances change, knowing the next steps can help you navigate the process.

Calculating Penalties

Typically, the penalty for breaking a mortgage is calculated in two different ways. Lenders generally use an Interest Rate Differential calculation or the sum of three months interest to determine the penalty. You will typically be assessed the greater of the two penalties, unless your contract states otherwise.

1. Interest Rate Differential (IRD): In Canada there is no one-size-fits-all rule for how the IRD is calculated and it can vary greatly from lender to lender. This is due to the various comparison rates that are used. However, typically the IRD is based on the amount remaining on the loan and the difference between the original mortgage interest rate you signed at and the current interest rate a lender can charge today.

Ideally, you will want to be aware of what your IRD penalty would be before you decide to break your mortgage as it is not always the most viable option. 

In this case, these penalties vary greatly as they are based on the borrower's specific mortgage and the specific rates on the agreement, and in the market today. However, let's assume you have a balance of $200,000 on your mortgage, an annual interest rate of 6%, 36 months remaining in your 5-year term and the current rate is 4%. This would mean an IRD penalty of $12,000 if you break the contract.

2. Three Months Difference: In some cases, the penalty for breaking your mortgage is simply equivalent to three months of interest. Using the same example as above - balance of $200,000 on your mortgage, an annual interest rate of 6% - then three months interest would be a $3,000 penalty. A variable-rate mortgage is typically accompanied by only the three-month interest penalty.

Paying The Penalty

When it comes to making the payment, some lenders may allow you to add this penalty to your new mortgage balance (meaning you would pay interest on it). You can also pay your penalty up front. Whenever possible, if you can wait out your current mortgage term before making a change to your mortgage, it is the best way to avoid being stuck in the penalty box. If you cannot avoid a penalty, do note that, while only calculators can be great tools for estimates, it is best to contact me directly to discuss your mortgage terms and potential penalty calculations.

Home insurance is exactly what it sounds like—a type of insurance for your property and its contents that protects against damage, liability, and loss. While home insurance isn’t mandatory in Canada, buying a home is one of the largest purchases you’ll ever make, so it’s worth your time to invest in protection in the event of any sudden mishaps. 

“Insuring your home is a big thing. You want to be able to protect one of the biggest investments that you’ve made in your life,” says Matt Hands, business director of insurance at Ratehub.ca. “You want to make sure you get the right coverage, at the right price that fits within your means.”

Determining the best kind of home insurance coverage for your needs can feel overwhelming to navigate with so many providers and options available. To better understand how to sufficiently protect your residence, Hands offers some of the most important aspects every homeowner should know about home insurance. 

Why and when do I need home insurance?

Unlike auto insurance, home insurance isn’t government-mandated, but that doesn’t mean it’s not crucial to have. 

Hands explains most mortgage lenders today will require you to secure home insurance in order to protect the asset they’re financing. Having insurance can also give you peace of mind by knowing you’re covered when something unexpected happens, like a burglary, an on-site injury, or damage caused by a storm.

“[The] flooding of basements is very common and those can range from $30,000 to $40,000 easily, especially if you have a finished basement and you have to replace all of the carpets and tons of furniture,” said Hands. “Having that level of coverage provides peace of mind knowing you’re covered in any of those scenarios.”

Hands notes it’s important to have your home insurance kick in on the day you move into your property. This can be especially helpful so you’re covered for liability with movers or repair people on site. 

When searching for home insurance, Hands says it’s beneficial to shop around and explore the various types of options and prices out there, especially since insurers will each have different methods of determining your premium. 

A premium is the amount the homeowner pays to the insurance provider on an annual or monthly basis for assuming the risk of the property. Premiums are calculated using a number of factors about the home which determine how likely the property will require an insurance claim. 

Asking your insurance broker questions and comparing options can be the most effective way to get the best rate and coverage designed for you. 

“No two insurance companies will rate you the same way. They often will look at similar factors that go into a price, but they weigh them differently,” explains Hands. “They could be looking for different types of customers that meet different criteria.”

What types of insurance are out there?

According to Ratehub.ca, the average cost of home insurance in Canada is $960 per year, but the price you’ll pay for your specific property will depend on a number of factors. 

There are three major types of insurance in Canada—home, condo, and tenant. At a basic level, insurers will assess the property’s size, location, construction materials, appliances, replacement costs, and upgrades to assess the home’s risks and calculate the insurance premium.

The type of insurance you require will also play a role in determining your premium. For example, Hands says the cost of insurance of the average home in Ontario is around $1,250 annually, which is slightly more expensive than condo insurance, which averages between $700 and $1,000. 

If you’re trying to lower your premium, paying your insurance on an annual basis, increasing your deductible, combining it with your auto insurance, or even asking for a discount from your provider can all cut down on costs. 

How much coverage and protection can I buy?

Once you’ve determined the type of insurance you need, you’ll next need to choose the level of coverage. According to the Insurance Bureau of Canada (IBC), there are four common varieties of home insurance policies, all of which have different levels of protection. 

A comprehensive coverage insurance policy will protect the physical building and its contents against all insured perils—an event that will cause damage—except for those specifically excluded. Uninsurable perils, like earthquakes, and optional coverage, which is additional protection that’s not automatically part of the insurance policy, are not typically included in comprehensive policies, as per the IBC. However, comprehensive policies are considered to be the most inclusive in terms of how much they cover. 

Basic policies will cover only the perils explicitly named in the policy. For that reason, these are generally among the cheapest insurance options. 

If you’re looking for a middle-of-the-road insurance package, a broad policy will apply comprehensive coverage on big-ticket items like the building, but also named perils for the home’s contents. Finally, if your home doesn’t meet typical insurance requirements, like if it has extensive physical problems, a no-frills policy for these specific cases could be available from your provider. 

Hands points out determining what kind of coverage you need will largely depend on your property’s location. Environmental factors such as floodplains and earthquake-prone areas could cause damage to your property, but not all insurance policies will protect you against these elements. Hands says you may be required to include a form of optional coverage known as an endorsement in your policy. 

“Basic coverage doesn’t include sewer backup or overland water, which is considered flooding endorsements,” says Hands. “Those are the things you probably want to add if you’re in an area that is prone to flooding.”

In addition to the physical building, insurance endorsements can also protect specific contents on the property. For instance, if you own high-value items like jewelry or art, a provider may only allow you to claim up to $6,000 in coverage for such items, Hands explains. However, an endorsement for high-priced items in your insurance policy would provide you with full coverage in the event of theft or damage. 

“A lot of people assume that because they have contents coverage that everything inside their house is going to be covered, which isn’t true,” says Hands. “There are limits to the amount they’ll cover on certain items.”

What do I need to do to make a claim?

If an incident occurs on your property, Hands says to report the event to your insurance provider as soon as possible to start the claims process. Documenting all aspects of the incident with photos, receipts and notes, and keeping a log of lost items will help greatly with processing your claim and getting reimbursed. 

“You can never over-document a scenario,” says Hands. “Take pictures, jot down notes. Just like if you were ever in an accident, you want to document everything right away so it’s fresh in your mind.”

You’ll be required to pay a deductible, which is the cost you’ll use to cover damages before your provider pays out. Hands explains your provider will also be able to give guidance on what to do and what not to do when accidents happen on your property, especially in cases where repairs are required. For example, your provider may only work with approved contractors to ensure the quality of the repair. 

It’s always good to keep your insurance provider in the loop when big upgrades or changes happen on your property, not only to ensure you’re fully protected, but also to prevent a scenario where you’re violating your contract and therefore jeopardizing your claim. For example, many homeowners have been undertaking renovations or setting up a home business during the COVID-19 pandemic. These cases require updating your provider since you’re potentially adjusting the replacement costs of materials and adding greater liability or risk to the property that would require coverage. 

“It’s always important to update your insurer, to keep them in the loop of what’s going on with your property,” says Hands. “They often refer to that in the industry as ‘material misrepresentation of facts’ or ‘negligence’ or outright lying if they think that you’re purposely hiding facts from them just so you can get a cheaper rate.”

If you’re a new or renewing home insurance owner, an experienced REALTOR® can connect you to local insurance experts for the best coverage for your property.

The Ultimate Home Inspection Checklist for Buyers 

re you buying a new house sometime soon?

We’ve put together the ultimate home inspection checklist for Canadians looking to buy the house of their dreams.

What is a Home Inspection?

Sometimes, when we’re looking for a new home, we tend to get a superficial glance at all the beautiful aspects of it, such as a pretty lawn in front, or a fireplace that looks appealing and ready to keep us warm through the long and cold Canadian winters.

However, we may not always get the full picture from the person who is selling the house to us, whether it be the homeowner or the estate agent in charge of the property.

Buying a home is a massive investment, and one of the biggest decisions a person can make in their lifetime.

Therefore, a proper home inspection is recommended before you move in.

The American Society of Home Inspectors defines a home inspection as “An objective visual examination of the physical structure and systems of a house, from the roof to the foundation. After the inspection process, the inspector will send the client an inspection report (often within 24-48 hours) that covers their findings, complete with pictures, analysis and recommendations.”

A home inspection makes sure that beyond what you can see with your own eyes, an expert helps to investigate and check that if there are foundation cracks, ancient plumbing, dangerous wiring or broken appliances, they are then revealed through the home inspection, and need to be rectified by the homeowner.

How to Prepare for a Home Inspection

Normally, there are four things that you should prepare before doing a home inspection at your (potential) new home:

1. Make Use of a Home Inspection Checklist

When you’re inspecting the new house, you want to make sure that you cover all the necessary items, but don’t waste time by analysing the items that you’ve already checked. See below in this article, for a PDF checklist that you can download to take with you to the inspection.

2. Look at the layout of the home

Whilst this may sound obvious, have a look at the size of the house, and then have a look at the size of your family. Will you be having more children in the future? Is the house large enough for your needs?

These are important questions to ask, that can save you a headache in the long-term.

3. Bring a Trusted Companion Along for the Inspection

Nobody can spot all the issues by themselves. We recommend bringing a friend/lover/family member along with you for the inspection.

That way, if you miss anything, hopefully your companion can also lend a pair of eyes to look out for the necessary items on the checklist.

4. Make Sure to Hire a Professional Inspector

Making use of a qualified home inspector will give you tremendous peace of mind, and satisfaction in the long-term. Their job is to look at houses, and ensure that everything is in working order. So while you may have a good eye for things by yourself, they are likely to look for things that you’re not even aware of, and will save you from needing to pay for those potential repairs from your own pocket in the future.

Common Home Inspections Problems

Whilst there are many things that may cause a home inspector to worry when doing a home inspection, there are certain problems that are frequently found, and it’s wise for you to arm yourself with this knowledge before attending your home inspection. That way, you can also contribute to the home inspection, along with the inspector.

1. Roofing Issues

A roof is probably one of the most important aspects of a house, since it protects us from the elements, and gives us a sense of comfort and security.

Unfortunately, roofing issues are very common, and are costly to repair. That’s why you should ensure that the roof in your new house is in mint condition.

A new roof in Canada is estimated to cost at least $1.17 per square foot for a new roof (including materials and installation). That’s the low-end estimate for an asphalt shingle roof, which is the cheapest material.

2. Issues With the House’s Foundations

With a roof over your head, you’ll be protected from the rain, sunshine and the snow. However, if your home’s foundation is shaky, then it stands a chance of collapsing in on itself, which is extremely dangerous, and can safely be avoided.

When you’re going through the house, there are certain signs that you can look for when doing the inspection, such as cracks in plaster walls, a basement wall crack that extends from floor to ceiling, doors that stick, sagging floors, pooling water near a slab foundation, or a wet crawl space after precipitation falls.

There are some signs that are less subtle, such as strange smells coming from the basement or uncomfortable indoor humidity. However, sometimes signs of foundation problems are not immediately associated with foundation damage and go unnoticed by the untrained eye.

3. Plumbing, Heating and Electricity

When we look at a home, we normally see the foundation, the walls, and the exterior beauty. Beneath it all, lies a maze of wiring and pipes that ensure that we have enough heat, electricity and plumbing that works.

When a home inspection is done, often the major issues lie in these areas, because they are not apparent to the blind eye. Therefore, you might need to bring in an expert in each of these areas to get their professional approval before purchasing the house.

What a Home Inspection Checklist Should Include

Here are some of the most common items that you should include on your checklist:

The Kitchen

• Inspect the countertops, the sinks, and check that all the cupboard doors are working.

• Have a look under the sink at the pipes, and see that they’re not leaking.

• Pour water from the taps into the sinks, and see that the water is flowing correctly at the right pressure.

The Floors, Walls and Ceilings

• The floors, walls and ceilings usually suffer from cracks, damage over the years, or water seeps into the walls.

• Take your time and inspect the walls for any sort of strange bumps, or uneven surfaces. Don’t rush, be sure to take your time, and carefully inspect every room.

• Sometimes water that seeps into the walls causes water spots. These are usually discoloured, and you will notice that something doesn’t look right, because the normal paint will appear as a different colour.

The Bathrooms

• Turn on the taps in the bath and sink. Ensure that the water pressure is similar to that of the sink in the kitchen. Make sure that the water is a normal colour and texture. Ensure that both the hot and cold water taps are working, to ensure that the geyser/water heater is functioning correctly.

• Make sure to ask the homeowner how the geyser/water heater works, to ensure that you are turning it on at the correct times, and using it to its maximum capacity.

• Flush all the toilets, and ensure that there are no blockages.

• Make sure that the water is draining correctly in the bathroom sinks, in the showers and in the baths.

• If there are tiles, ensure that they are in one piece, and there are no cracks or dents.

• Open all the cabinets and cupboard doors to ensure that they are still in good condition.

The Windows and The Doors

• This has nothing to do with “The Doors”, the epic rock band. We are referring to all the doors and the windows in the house. Go around the house and ensure that they all open and close correctly, and that the latches are solid and in good condition.

• Have a look at the window panes, and check that there are no cracks or broken glass. It is important, because in Canada a windy draft can cause the house to become icy cold.

The Basement (If There is One)

• Have a look at the foundation for any cracks and/or stains.

• Make sure that water is not leaking into the basement.

• If there are wooden beams used to support the structure of the house, ensure that they are in working conditions, and you don’t notice any decay or wear and tear.

The Attic (If There is One)

• Similar to the basement, the attic is one of the less frequently used rooms in a house. That’s why you should pay extra attention to it when doing the home inspection. You need to have a close look at the structure inside it, and make sure that there’s no water damage. The attic is the first line of defence against the natural elements.

• Therefore, ensure that the attic is providing proper insulation and ventilation, so that nothing erodes over time.

Plumbing and Heating

• All houses contain plumbing and heating in Canada. Inspect all the heaters, electrical panels, wiring, taps and pipes to ensure that they are in working order.

The Exterior of the House

• Walk around the house on the outside, and inspect the structure and walls. Have a look at the driveway, the roof, the garage door (if there is one) and the garden, and ensure that they are all up to your standard.

Using Our Printable Home Inspection Checklist

We’ve put together the most user-friendly home inspection checklist in Canada. It has all the instructions you’ll need to do a thorough home inspection.

Get the Checklist (PDF)

7 Ways Sellers Can Up Their Home's "Screen Appeal"

7 Steps for Mortgage Prep

Step 1 - Your Credit Score
Whether you qualify for a mortgage through a bank, credit union or other financial institution, you should be aiming for a credit score of 680 for at least one borrower (or guarantor), especially if you are putting under 20% down.

If you are able to make a larger down payment of 20% or more, then a score of 680 is not required.

If your credit score does not meet the minimum requirements, there are a number of things you can do to improve it and your future financial success, including:

• Paying your bills in full and on time. If you cannot afford the full amount, try paying at least the minimum required.
• Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible.
• Stay within the limit on your credit cards and try to keep your balances as low as possible.
• Reduce the number of credit card or loan applications you submit.
• Considering an Alternative Lender (or B Lender) if you are struggling with credit issues.

Step 2 - Your Budget
When considering your budget, it is important to look at the purchase price budget, as well as your cash flow budget. Being house rich and cash poor makes for a no-fun home!

The home price based on your cash flow budget may be dramatically different from the budget home price you qualify for. Not only does having a budget help you to understand your purchase price range and help you to find an affordable home, but it can also help you to see any gaps or opportunities for future savings.

This will be instrumental when you become responsible for mortgage payments.

Step 3 - Your Down Payment
The ideal down payment for purchasing a home is 20%. However, we understand in today’s market that is not always possible. Therefore, it is important to note that any potential home buyer with less than a 20% down payment MUST purchase default insurance on the mortgage, and they must have a minimum down payment of 5%.

The down payment on your home could come from your own savings such as a savings account or RRSPs. Thanks to the federal government’s Home Buyers’ Plan, potential first-time home owners are able to leverage up to $35,000 of your RRSP savings ($70,000 for a couple) to help finance the down payment.

A gift of a down payment from an immediate relative is also acceptable. If your down payment comes from TFSA or RRSP, the bank will want 90 days of statements to ensure the funds are accounted for. Gifted funds rarely require 90 days of proof.

Step 4 - Your Mortgage Options
Rate is only ONE of the many features in selecting the best mortgage product that meets your financial goals. With access to hundreds of lending institutions, a mortgage broker is familiar with a variety of mortgage products allowing them to help find the best mortgage for YOU! Plus, unlike banks, mortgage agents are a third-party service focused on YOUR needs. This means that you can get the best rates and unbiased advice all for FREE from someone whose only goal is helping you achieve your dream of home ownership.

Step 5 - Your Paperwork
When you apply for a mortgage, you will typically need to provide a standard package of documents, which almost always includes:

• Your government-issued personal identification
• One month of recent pay stubs from any applicants who will be listed on the loan
• Letter of employment
• Your most recent two years’ worth of personal CRA tax filings and financials (if incorporated)
• Three months of bank account statements
• Your down payment (minimum 5%)
• Documentation to explain any unusual (generally non-payroll) large deposits or withdrawals

Step 6 - Your Pre-Approval
To have the best success with your mortgage, it is recommended that you get pre-approved! This can be done through your Mortgage Professional to ensure that you get the best mortgage product FOR YOU, from the best rate to the best term agreement. Pre-approval helps verify your budget and allows your real estate agent to find the best home in your price range.

1. Pre-approval guarantees the rate offered and locks it in for up to 120 days. This protects you from any increases in interest rates while you are shopping (phew!).
2. Pre-approval lets the seller know that securing financing should not be an issue, which is beneficial in competitive markets!

Quick Tip: Don’t forget about the closing costs! These range from 1 to 4% of the purchase price and should be factored into your budget.

Step 7 - You’re Ready to Shop
You made it!! Once you have your down payment and have qualified for a pre-approved mortgage (your credit score is in order and all documentation has been provided), you are ready to start searching for your perfect home. 

Since the start of the pandemic, a series of COVID-induced lockdowns have forced people to reassess their living arrangements, resulting in a surge of interest regarding real estate and renovations.

A recent report by Point2Homes analyzed real estate-related searches in Google Trends. Recapping housing trends in 2021, the following four graphs offer a glimpse into the mindset of homebuyers, owners and renters who were looking to either update or upgrade their residence during the past year.

Record-setting sales

A spike in “houses for sale near me” searches at the start of the pandemic has translated to a surge of activity. According to the Canadian Real Estate Association (CREA), 2021 was the busiest year ever for Canada’s housing market, with increased activity draining supply and driving up prices across the country.

The CREA’s most recent figures show 630,634 residential properties trading hands so far during 2021, shattering the annual record of 552,423 sales set during 2020.

Meanwhile, Canadian home prices have reached an average of $720,850, representing a 19.6 per cent year-over-year increase.

The nation’s most expensive housing markets — British Columbia and Ontario — saw steady growth in average home prices, with high transaction numbers in both provinces helping boost Canada’s national average.

Vancouver’s housing market has reached an average price of $1.21 million, a 16 per cent increase year-over-year, while Toronto prices surged 22 per cent to an average of $1.16 million.

A dip in search traffic toward the end of 2021 could reflect potential homebuyers who are still drawn to “houses for sale” but dropping the “near me” requirement.

Driven by people increasingly leaving the Greater Toronto Area in search of affordability, New Brunswick led the Atlantic provinces in terms of year-over-year price gains with a 33 per cent change in average home prices, while Nova Scotia has seen a 21 per cent increase.

Ballooning mortgage debt

Policy makers at the Bank of Canada slashed interest rates to record lows at the start of the pandemic to stimulate the economy. That trend is reflected in both search traffic for “mortgage refinancing” and record high levels of mortgage debt.

Many Canadians opted to use the equity in their home to invest in other properties, contributing to the rise in real estate activity and home prices.

A lending guideline reversal from the Canada Mortgage and Housing Corporation (CMHC) in July abandoned last year’s CMHC changes that increased restrictions for mortgage insurance, specifically regarding credit score requirements and debt service limits. The reversal made it easier for borrowers to qualify for a CMHC-insured mortgage.

At the same time, an increase to the mortgage stress test benchmark rate in June made it harder to qualify for a mortgage. While that move was expected to cool Canada’s housing market, the slowdown remains to be seen.

Search traffic eased near the end of the year and future rate hikes are expected from the Bank of Canada in 2022, but until then the target overnight rate remains at 0.25 per cent.

Renovation resurgence ended

Four factors help explain why home improvement searches peaked last winter.

– Motivated by lockdown measures, homeowners who weren’t looking to relocate turned their attention and resources to renovation projects at the start of the pandemic.

– Work-from-home mandates increased the importance of a home office, ensuring enough space and comfort to attend meetings and make business calls.

– Spending more time at home translated to an increase in disposable income, providing an opportunity to invest in everything from simple upgrades to full-blown makeovers.

– As the housing market heated up, an increasing number of sellers upgraded their properties to attract buyers and drive up prices.

Interest in home renovation projects dropped during the course of the year as the economy reopened and pandemic restrictions eased. However, renovation projects could be on the upswing again with recent lockdown measures enacted amid concerns about the Omicron variant.

Rental markets recovering

According to rentals.ca, rents steadily declined during the first year of the pandemic due to steep discounts offered by individual investor landlords who were focused on maintaining tenants amid increasing vacancy rates.

Meanwhile, pandemic uncertainty forced postsecondary institutions to convert classes to online learning, impacting vacancy rates and housing patterns in several urban centres.

However, both rents and vacancy rates have rebounded during the second half of 2021, with figures approaching pre-pandemic levels. Search traffic has remained steady throughout the year, while pandemic-related restrictions have increased the demand for larger rental properties.

Reflecting the same conditions as home prices, rents in New Brunswick and Nova Scotia have surged during the last year, spurred by Ontario residents moving back east and working from home, which has significantly reduced supply and increased rental rates.

Amid surging prices and tight supply, Canada’s housing affordability has dropped to its worst level in 31 years, according to a report released today by RBC.

RBC’s housing affordability measure is the percentage of median pre-tax household income required to cover ownership costs, including mortgage payments, property taxes and utilities.

The national average jumped two percentage points during the third quarter to 47.5 per cent. The latest numbers follow a 2.7 per cent surge in the second quarter, significantly reducing affordability after home prices dropped in 2020.

“Homebuyer demand is supercharged and inventories are near historical lows in virtually every market, creating intense competition between buyers and pressured prices up,” said senior RBC economist Robert Hogue. “These conditions have widely eroded housing affordability in the past year.”

Home prices keep ramping up toward the end of 2021. According to a report released last week by RBC, the MLS Home Price Index for Canada increased for a third consecutive month in November, rising 2.7 per cent month-over-month and representing a 25.3 per cent increase from a year ago.

Greater Vancouver continues to be the country’s least affordable market, with the average household needing to allocate 64.3 per cent of its income to cover ownership costs. Toronto trails just behind, with an RBC affordability measure of 61.9 per cent

Montreal reached its worst level in 13 years with a measure of 40.7 per cent, while Ottawa hit 40 per cent to record its highest mark in a quarter-century. Deteriorating affordability impacted housing from coast to coast, with St. John’s the only market to see figures improve during the third quarter.

“The weight of ownership costs got heavier in all other markets we track for both single-family homes and condo apartments,” Hogue said.

Rising prices have forced some Ontario buyers to relocate to more affordable regions in Atlantic Canada, where RBC’s affordability measure has remained below long-term averages. The same conditions have been seen in Alberta, where high sales activity has led to moderate price increases, although not enough to significantly impact affordability.

RBC forecasts that affordability will continue to decline during the next year, with the Bank of Canada expected to increase its overnight rate next spring.

“Earlier in the pandemic, home buyers benefited from declining interest rates that offset the impact of escalating property values,” said Hogue, noting that’s no longer the case, and recent rate hikes have impacted affordability. “A small increase in the five-year fixed mortgage rate accounted for half the two percentage-point increase in RBC’s aggregate measure for Canada in the third quarter.”

According to the RBC report, rising interest rates alone could increase the national affordability measure between two to 3.5 percentage points in 2022, while an additional five per cent spike in home prices would translate to an extra two percentage points.

“Because of already challenging conditions and the fact that rising interest rates will push up ownership costs more in Canada’s priciest markets, we expect buyers in Vancouver, Toronto, Victoria and, to a lesser extent, Ottawa and Montreal to be under the most pressure to reset their expectations,” said Hogue.