What is downpayment?

A down payment is the amount of money you put towards the purchase of a home, usually from your savings.

Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home.

For example, if your purchase price is $300,000 and you pay $50,000 as a down payment, your mortgage loan covers the remaining $250,000 of the purchase price. You’ll pay that amount back over time to your mortgage lender, plus interest.

How much do you need for down payment?

Down payment can be ranged from 5% to as much as the full price.

The minimum amount you need for your down payment depends on the purchase price of the home.If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.

>>> If you’re self-employed or have a poor credit history, your lender may require a larger down payment 

Mortgage loan/default insurance isn’t available if:

* the purchase price of the home is $1.5 million or more

* the loan doesn’t meet the mortgage insurance company’s standards

Your lender coordinates getting mortgage loan insurance on your behalf if you need it.

Cost of mortgage loan insurance

The fee you pay for mortgage loan insurance is called a premium. Mortgage loan insurance premiums range from 0.6% to 4.5% of the amount of your mortgage. Your premium depends on the amount of your down payment. The bigger your down payment, the less you pay in mortgage loan insurance premiums.

Find premiums based on the amount of your mortgage:

· Canada Mortgage and Housing Corporation (CMHC)

Advantages of a larger down payment

* Avoid mortgage insurance: Putting down 20% or more means no extra premiums, saving you money in the long run.

* Lower monthly payments: A larger down payment reduces the amount you need to borrow, leading to lower payments.

* Pay less interest: A bigger down payment reduces the total interest paid over the life of the loan.

* More equity: Paying more upfront gives you more equity in your home, which can be useful if you need a home equity loan or line of credit.

Disadvantages of a larger down payment

* Less cash for other expenses: Using all your money for the down payment means less available for moving, renovations, furniture, and other new home costs.

* Missed long-term opportunities: The money tied up in your down payment could be used for retirement savings, investments, or      other financial goals.

* Longer savings time: Saving for a larger down payment can take more time, delaying your homebuying timeline.

Got questions? Reach out to Angie Li at TMG – she’s here to help!