Is it more beneficial to make the minimum Down Payment and keep the remaining funds invested in the Market vs avoiding the cost of mortgage insurance?
There are likely several major reasons you might choose to make a lower down payment and keep the additional cash including: 
- Tax Planning – liquidating investments can have tax implications
- Investment Returns vs Mortgage costs – The potential return on investments, could exceed the cost of mortgage interest
- Cash Flow Considerations – some clients can comfortably manage a higher monthly payment
- Maximizing RRSP Contributions – investing, rather than using funds for a Down Payment, could generate additional tax refunds.
CLIENT EXAMPLE: I have $50,000 saved up, but this only covers 10% of a rundown town house. Are folks putting less down and how bad is it in the long run to do 5% vs 10% vs 20?
A 20% Down Payment is great, if you can afford it, but 5% gets you into the market sooner. If compared to renting and it isn’t much more expensive, then it may make sense to enter with 5%.
At 5% down, CMHC Insurance costs 4.1%, basically wiping out your entire Down Payment.
At 10% down, CMHC drops to about 3%, so you effectively end up with about 7% equity in your home.
At 20% down, CMHC Insurance can be removed completely, so you retain the entire 20% as equity.
Don’t forget about the closing costs that will eat into that $50,000, plus money left over for furnishings and an emergency fund.
If you are thinking of purchasing your first home, do contact us first to find out what mortgage you can qualify for.
