By GoldenGirlFinance.com

All of the recent changes to Canadian mortgage rules make it pretty clear: Regulators want to dissuade first-time homebuyersfrom purchasing a property with nothing down. Yet, despite changes that did away with 100 percent financing back in 2008, and the recent barring of cash-back mortgages by the Canada Mortgage and Housing Corp., buyers can still manage to take a step up the real estate ladder with little upfront cash. The question is - does it make financial sense?

Let’s weigh the options….

Why it's best to have a robust down payment

While saving for a sizable down payment can be a huge financial burden, it's an investment that can save you a considerable amount of cash in the long run. Remember – the smaller your down payment, the riskier you look to a bank. Low down payment home mortgages require more leverage, and high leverage borrowers are open to a substantially higher risk of bankruptcy.

While larger down payments inherently help lenders, they also benefit borrowers in a variety of ways. This is especially true for buyers who are planning to sell in the early years of their residential mortgage. With the recommended 20 percent down payment, you'll generally have enough equity built in to your property to cover closing costs, even if there has been a 10 percent decline in the market value of the home.

Alternative down payment options

Coming up with tens of thousands of dollars for a down payment isn't always an option, especially when you're a young, first-time homebuyer. Houses are expensive - no ifs, ands or buts about it! At a time when the average Canadian home price hovers around $356,000, the Canadian Association of Accredited Mortgage Professionals has found that more than one-fifth of all renters have less than $5,000 put away for a down payment.

So what's a cash-poor house hunter to do?

For many, the answer is to seek out an alternative down payment source.

Borrowing from nontraditional sources

When buying a home in Canada, you generally need a minimum down payment of 5 percent of the purchase price of the home. It's worth noting at this point that legislation prohibits you from borrowing that 5 percent from your mortgage lender if that lender is a bank or federal trust company.

However, you're free to borrow your down payment from a number of different credit sources. Popular choices include a line of credit, personal loan, or even a credit card. Of course, tossing your down payment onto your VISA isn't the most responsible way to manage your investment (don’t do it!).

If you're thinking about borrowing your down payment, get ready for some serious interest charges. More often than not, the interest rate on a borrowed down payment will be much higher than that on your mortgage, or have a riskier variable rate, at the very least.

The cash-back option

It's worth noting that any lender who isn't federally regulated (like a credit union, for example) can still offer cash-back down payment mortgage products. Not surprisingly, the interest rates on these offers are astronomical. Homebuyers are also required to come up with the cash for closing costs, including legal and inspection fees, as well as land transfer taxes, and other fees.

Be wary: There's speculation that the loophole that enables some institutions to offer this product will be eliminated in 2013 through new mortgage insurer and/or provincial regulations.

The RRSP Home Buyers’ Plan

First-time homebuyers are encouraged to take advantage of the government's Home Buyers’ Plan (HBP) in order to draw upwards of $25,000 from their RRSPs in order to fund their down payment. And while this is a great option, it comes with a few red flags. First, draining your retirement savings in your 20s and 30s means you'll risk losing years of tax-deferred investment gains. Secondly, any installments that aren't paid back before the deadline are taxed as income on that year's income tax statement. Statistics show that as many as one-quarter of HBP participants miss or underpay on an installment.

Going with a gifted down payment

Generous relatives are often willing to help fund a down payment through a financial gift to a first-time homebuyer. In most cases, however, lenders will only consider gifted down payments from a parent, grandparent or sibling.

It's important to note that a "gifted" down payment is very different from a personal loan from a relative. With a gift, there's no expectation to pay the relative back. If you're borrowing money from a relative in order to make ends meet, this is not a gift. It's an additional liability that your lender will need to consider as it increases a borrower's debt obligations.

Proceed with caution & get advice

When it comes to buying a house with someone else's money, always remember to be careful. Just because you qualify for a cash-back mortgage or have enough squirreled away in your RRSP doesn't mean you're ready to shoulder the responsibilities of a mortgage. Talk with an accredited mortgage broker and your trusted financial advisors before you make your final financing decisions.

Did you know that, next to heating and air conditioning, your lights consume most of the energy in your home? In fact, you can lower your electricity bill quickly – and substantially – simply by being smarter about lighting.

First, consider replacing your conventional light bulbs with the energy-saving variety. You've probably seen these at your local home improvement centre. Compact florescent light bulbs, for example, use up to 75% less energy.

Second, lower the wattage in some outlets. Is it necessary to have a 100 watt bulb in the furnace room? Try a 60 watt bulb.

Finally, think before you turn on the lights. Do you really need them on? Perhaps there's an alternative, such as opening a window blind to let in more sunlight.

When you see a new home you like on the market, it's easy to get distracted by all the features you love – the wrap-around backyard deck or the spacious rec room with plenty of space for entertaining. You just need to make sure that in all that excitement you don’t overlook any expensive maintenance issues that could be just around the corner.

Nothing lasts forever. The major components of every home – from the furnace to the roof shingles – need to be replaced eventually. Knowing when such maintenance issues are likely to arise can help you make a smarter decision about the home you're considering.

How do you do that?

When viewing a property, ask for the age of the major components of the home, such as the roof shingles, furnace, air conditioner, water heater, and appliances. Roof shingles may look merely weathered in spots – and you might think they have years of service left – when, in fact, they're due to be replaced in a year.

Also pay close attention to the backyard deck, fencing, flooring, and windows. Do any of those components look aged, worn, and in need of repair or replacement sometime soon?

Finally, don't forget to check the kitchen and bathrooms. Sinks, faucets, bathtubs, showers, and cabinetry have a life-span of about 10-15 years.

Of course, there are things you can't see, such as wiring, plumbing, venting, and other components of a property that may require maintenance soon. That's why it's so important to make any offer to purchase a home conditional on passing an inspection by a qualified home inspector.

Want more ideas on buying the right home for you? Call today.

There has been a lot of mortgage news recently as the Big Banks fight for market share with record-low mortgage rates. Last year, we covered how BMO Bank of Montreal started the mortgage wars by offering a 2.99% 5-year fixed rate mortgage. Other lenders followed suit, matching the 2.99% rate, but generally offering only a 4-year option. After a month, RBC Royal Bank signaled the end of this war by raising its rates by 50 basis points to 3.49%. Other lenders followed RBC's lead in order to shore up their profit margins.

One year later, in preparation of the Spring Housing Market, BMO is once again offering a posted 2.99% rate while other lenders are offering a 2.89% 5-year fixed rate mortgage, much to the consternation of the Minister of Finance

(http://www.theglobeandmail.com/report-on-business/economy/housing/flaherty-warns-banks-over-igniting-mortgage-war-as-bmo-cuts-rates/article9251525/).

As a consumer, given the current fixed and variable rates available, what should you do?

Since 1975, variable rate mortgages have proven to be more financially beneficial 82% of the time. That said, some experts are now saying that given historically low rates, we may now be in that 18% period where it makes more financial sense to lock into a fixed rate mortgage. Remember the current rate is far below the historical average, which, since the 1950s, has generally remained north of 6% for the majority of that time.

Some things you should consider when choosing between a fixed- and variable-rate mortgage:

Choose a variable-rate mortgage if:

• You think interest rates will remain at the same level or lower during the term of the mortgage
• You think there's a possibility that you may sell prior to the end of the term and wish to avoid pre-payment penalties
• You can afford a possible rise in rates and do not worry about it

Choose a fixed-rate mortgage if:

• You think interest rates will rise more than the difference between your current fixed and variable rate mortgage options
• You have no plans on selling your home during the mortgage term
• You want to know what your payments will be and have peace of mind that they will not change

Something else to consider is that some lenders will allow you to first enter a variable-rate mortgage and then switch or 'lock-in' to a fixed rate mortgage if rates begin to rise.

In the end, your personal situation is unique and you should speak to a professional broker or mortgage specialist to determine what the best option is for you. If you wish to speak to someone, please contact me at the address below.

Home sales continue at below average pace for February