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Buying a home – How much of a down payment should you have?

Are you thinking about buying a home? If you are, you may be wondering how much of a down payment you need to have in today’s market? Or if you don’t have a large enough down payment will you need to pay for mortgage insurance?

The Canadian housing market continues to move full steam ahead into 2021. Contact Client First Mortgage Solutions today. We can answer all of your mortgage related questions. At Client First Mortgage Solutions we have access to the widest variety of lenders, to find the right solution for you. We are experts at helping you achieve your homeownership dreams.

Down Payment

In order to buy a home, the first thing you will need is a down payment. The more money you put down, the less interest you will pay over the life of your mortgage. The minimum mortgage down payment amount that is typically required in Canada is 5 per cent. In order to put less that 20 per cent down, mortgage default insurance is required. Mortgage insurance premiums are paid once, but can be added to the principle of the mortgage.

 A down payment of 20 per cent or more will qualify you for a conventional mortgage. If it is less than 20 per cent, the mortgage must be insured with a mortgage insurance company.

Mortgage Insurance

Mortgage insurance works by transferring the homeowner’s risk of default from the lender to the mortgage insurer. This benefits homebuyers by allowing them to obtain loans at lower interest rates than would otherwise be charged if the lender retained the risk of default.

Benefits Of A Big Down Payment

Making a down payment of at least 20 per cent on your home purchase helps you avoid paying your home insurance premium through the Canada Mortgage and Housing Corporation (CMHC). Also a large down payment will give you access to home equity much faster. Meaning you are able to remortgage your home up to 80 per cent loan-to-value, and a home equity line of credit typically runs at 65 per cent loan-to-value.

Benefits Of A Small Down Payment

Making a small down payment will force you to pay the insurance premium, however it also reduces the substantial amount of cash that will be frozen up in your property. It may be better to commit to a smaller down payment, if a larger down payment will use up all your cash. Also, committing to a smaller down payment could be a good strategy, as interest rates are likely to remain at historic lows for some time. Click the link for 10 benefits of mortgage insurance.

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