Are you considering buying a home in Canada, but feeling overwhelmed by the various financial factors involved? Down payments are a crucial aspect of the home-buying process and require careful consideration. As experienced mortgage brokers at Browne Mortgage, we're here to provide informative guidance on the benefits of paying a 20% down payment versus not. A down payment is the money you put down upfront towards the purchase of a home. Your down payment amount determines the size of your mortgage loan. In Canada, the minimum down payment required for a purchase price under $1M is 5% of the purchase price up to $500,000 and 10% of the balance. However, there are additional costs that come with a lower down payment. When paying less than 20% down, you are required to purchase mortgage default insurance. This is a premium that is added to your mortgage amount and is obtained through one of the mortgage insurers such as CMHC, Sagen, or Canada Guaranty. This insurance protects your bank in case you default on your mortgage payments. The amount of the mortgage default insurance premium depends on your down payment and the purchase price of the home. It's essential to include this cost in your calculations when deciding on the size of your down payment. Example: The house costs $500,000 and you have a down payment of $25,000 which is less than 20% The Mortgage is $475,000 but CMHC will add another $19,000 The rate is lower at 5.49 so you will be paying $3,012 a month Now let's look at a 20% down payment which is $100,000 The Mortgage is $400,000 with paying 20% down the rate has increased to 5.79 The monthly payment is $2,509.
It is important to note that not everyone can afford a 20% down payment. Putting a larger down payment allows you to take a smaller mortgage loan, resulting in a lower monthly payment saving thousands of dollars in interest. However, it is not always possible for every buyer. We recommend speaking with an experienced mortgage broker to assess your financial situation and create a plan that suits your needs. Contact us at Browne Mortgage, and we'll guide you throughout the process with personalized advice and support.