How much do you need for a downpayment on a home? The is perhaps the most frequently asked question by many prospective buyers. It is possible to buy a home with 5% down, the amount of your down payment will determine whether you’ll have a conventional mortgage or an insured, high-ratio mortgage. What’s the difference? A Conventional mortgage means that your down payment is at least 20% of the purchase price. A High-ratio mortgage means your down payment is less than 20% of the purchase price.
I have been approached by a lot of buyers that ask me this question all the time. While this is not a difficult question to answer, the most direct and honest answer is “it all depends on you.” You have a few options with respect to the amount of money you put down.
High ratio mortgages must be insured by a third party such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty and require you to pay an insurance premium.
Let’s clarify this insurance premium. Your insurance premium will depend on the
amount you are borrowing and the percentage of your down payment. Typically Mortgage default insurance premiums range between 0.5% and 2.75% of your total mortgage amount and can be added to the principal balance and paid off as part of your mortgage, or paid off in a lump sum at the time of purchase
So there you have it folks. A short and concise article on down payments. For a more in-depth analysis on down payments and mortgage, contact your local financial expert at an institution near you.