How much down payment do I need?
You can buy your new home with a little as a 5% down payment. However, when your down payment is less than 25% of the purchase price, you must buy mortgage loan insurance. This insurance protects the bank from losing money if you default on your mortgage payments. Because the bank is insured against loss, they have the confidence to lend you the money you need even though you have a relatively small down payment. It is required by law that your mortgage be insured if the lender is a Deposit Insuring Institution (the includes almost all lenders except private lenders).
How much does it cost?
In addition to a $165 application fee, a premium will be added to your mortgage. This means that you do not need to pay for the insurance right away, but instead you can pay it over the life of your mortgage. The amount of your premium is determined by the size of your down payment and is calculated on the amount of your mortgage loan.
Down payment Premium
5% 3.75%
10% 2.50%
15% 2.00%
20% 1.25%
Example: You are purchasing a home for $200,000 and you have a 5% down payment. Your premium would be $7,125.00 (3.75% of a $190,000 mortgage). The bank will pay this amount on your behalf and then add it to your mortgage. The final mortgage amount is $197,125. ($190,000 plus the insurance premium). It is this amount on which your monthly payments are based.
Other Restrictions:
In order to qualify for mortgage insurance, there is other criteria that must be satisfied.
* The home must be in Canada and be your principal residence
* You must be a Canadian Citizen or have Landed Immigrant Status
* Your mortgage payment plus the monthly portion of your property taxes, heating costs, can not exceed 32% of your gross monthly household income. If you purchase a condominium you muct include 1/2 of the monthly condo fees.
* Your total debt load (mortgage/car/credit card/etc. payments) can not exceed 40% of your gross monthly household income.
* You must have sufficient funds to cover your closing costs (equal to 1.5% of the purchase price).
* The maximum purchase price for a 5% down payment in Greater Toronto Area areas is $250,000. In other areas it is $175,000. There is no maximum purchase price if you have 10% or more for a down payment.
* Some other restrictions may apply - your lender or mortgage consultant can advise you.
Who provides this insurance?
Mortgage insurance is provided by Canada Mortgage & Housing Corporation or GE Capital. Application fees and insurance premiums are the same for both insurers. Your mortgage consultant can assist you to determine which insurer is right for you.
If you need more information or have any questions call me at 905-373-8833