By Diane Amato, on behalf of RBC
Diane Amato is a Toronto-based freelance writer focused on money, travel, tech, climate and social impact
Housing is a key focus for Canadians, and is one of the most complex public challenges in the country right now, as housing, real estate and construction involves municipal, provincial and federal governments.
With economic uncertainty in the air, homebuyers are wondering: Will interest rates go up in the future? Is it better to watch from the sidelines for a while, waiting for rates to dip? These are questions shaping buyer behaviour today, creating a market where some buyers are actively pursuing housing opportunities, while others are waiting for mortgage rates to drop before purchasing a home.
For buyers looking for an edge in today’s market, RBC understands that a new construction home is an appealing option. Even if the home won’t ready for a year or more, buyers can take advantage of today’s rates and home prices. And, for those finding it a challenge to come up with a lump sum down payment, the installment structure of new construction homes offers an alternate path – one that can make it easier to enter the housing market.
Staggered payment structure of new builds makes homeownership more accessible
For first-time homebuyers in Canada, one of the biggest obstacles to ownership is saving for a down payment. While there are some programs and accounts that make it easier to save for a first home – such as the Home Buyer’s Plan (HBP) or a First Home Savings Account (FHSA) – it can still be a challenge for buyers to save up the full amount they need. For those ready to make a move now, buying a new build home could provide an edge.
This is where the installment structure offered by most builders plays an important role, allowing buyers to spread their down payment over months or years.
The transparency and staggered structure of the deposit schedule – when clearly outlined in the purchase agreement and posted on a project’s website – provides the buyer with valuable clarity.
Knowing what their financial commitments look like can help them make a housing decision they can feel confident about. Buyers appreciate it when builders lay it out like this:
• Initial Deposit: Five per cent of the purchase price at the time of signing the agreement
• Second Deposit: Five per cent within 90 days
• Third Deposit: Five per cent within 180 days
• Final Deposit: Five per cent within 365 days or at the time of occupancy
Other advantages for homebuyers – including newcomers to Canada
For many prospective buyers, there is meaningful upside to buying a new build. This is especially true for first-time homebuyers and newcomers to Canada, who often face additional financial hurdles such as limited savings or a shorter credit history. Add to this that newcomers are navigating a new financial system while trying to establish stability in a new country, and the advantages of buying new strongly resonate. Here are some of highlights that benefit both the buyer and the builder:
• Time to secure a down payment: The most common down payment structure – of 20 per cent of the purchase price – isn’t required up front, giving buyers more flexibility and time to save. For builders, staggered payments support cash flow throughout the construction process.
• Firm mortgage credit approval: RBC provides a firm mortgage credit approval that lasts from start (when buyers sign the purchase agreement) to finish (when the home is built and the sale closes). In other words, when they get approved, they stay approved. This firm approval gives buyers peace of mind – and gives builders confidence that the sale is secure, with financing in place to close the purchase.
• Locked-in interest rates: Buyers can lock in the interest rate for the duration of the build, reducing the risk of interest rates going up between purchase and move-in. What’s more, with RBC, buyers could take advantage of falling rates, helping to move rate-sensitive buyers off the sidelines and giving them the confidence to enter the market today.
• Equity-building opportunities: Buyers of new builds take advantage of today’s home prices – so if the value of the property goes up between the time of purchase and the move-in date, they could have the potential to build home equity from the start. For newcomers in particular, this path to equity can be a game-changer as they get settled in Canada.
• GST relief: The federal government has announced a GST rebate for first-time home buyers who are purchasing a new build. When introduced, the rebate will remove the GST on new homes at or less than $1 million and lower it on homes between $1 million and $1.5 million for all first-time buyers. It’s a move that makes purchasing new builds even more attractive for those buying for the first time in Canada – and could be the tipping point for buyers deciding between resale and new construction.
• Upgrade costs: While upgrades may increase the purchase price of a home, RBC Mortgage Specialists work with buyers to offer finance solutions that could help fund those additional costs and facilitate upgrade purchases, helping to further boost builder revenue.
• RBC Green Home Mortgage program: RBC offers up to a 35-year amortization period for buyers purchasing an eligible certified energy-efficient home, such as those meeting Energy Star v. 17.1 or homes built under British Columbia’s Step Code 4. Connect with an RBC Mortgage Specialist to find out more about the benefits that can help you attract more homebuyers.
Purchasing a new, pre-construction home can be a smart and flexible way for buyers to step into the housing market – especially in today’s interest rate environment. And with an RBC Builder Mortgage, homebuyers have the ability to spread out their deposit, lock in their mortgage rate and secure a home at today’s prices, all while having the peace of mind that comes with a firm mortgage approval.
RBC encourages clients to obtain a mortgage pre-approval prior to visiting a show home so that they’re confident in what they can afford, and then secure their firm mortgage approval – when they sign the purchase agreement or shortly after – so they can lock in their rate early. With no commitment to a mortgage until closing day, it’s security without obligation – a perfect scenario for buyers. Connecting them with an RBC Mortgage Specialist early allows for more streamlined sales.
By working together to highlight the benefits of purchasing a new construction home, RBC can help buyers feel more informed and empowered throughout the process. A little early guidance can go a long way in helping them move forward with confidence and clarity.
To learn about the flexible mortgage options designed for your customer’s life, connect with your RBC Mortgage Specialist. rbc.com/buildermortgage
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your client’s specific situation. The information presented is believed to be factual and up to date, but RBC does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
