So you're buying a new home? How much money will you be able to devote to your down payment? You may or may not know that the larger your down payment is, the less you'll pay in interest over the life of your mortgage. Another thing you may not know is that if your down payment is less than 25 per cent of the cost of your new home, you will have to obtain insurance on your mortgage. This is something that can cost you thousands of extra dollars in the long run.
A down payment of less than 25 per cent is called a "high-ratio" mortgage, and must be insured so that the lender isn't responsible in the event that you can't pay your mortgage. The CMHC provides just such insurance for your lender so that your lender can offer you a mortgage. It does, however, mean that you'll be spending extra money insuring your loan. If you can reach 25 per cent, then you're ahead of the game already. If you can't reach the magic number 25, then the first thing you should find out is if your lender is covered (see www.cmhc.ca for a list of approved lenders). Then from there you'll be able to calculate how much extra the insurance will cost, in addition to your mortgage principal and interest.
Remember that accumulating 25 per cent for any home's down payment is not an easy task. Try not to let the dollar amount dissuade you from attempting your dream. Besides, there is good news. The CMHC mandate is "to promote the construction of new houses, the repair, and modernization of existing houses, and the improvement of housing and living conditions."
What does this mean for homebuyers? The CMHC has recently made it more affordable to insure your mortgage, meaning that the extra cost of having a high-ratio mortgage is minimized. As of April, first-time homebuyers with 5 per cent down, will receive a 15 per cent discount on insurance premiums. This is the second premium reduction in two years. To qualify for this refund, you must be putting less than 10 per cent down?which makes it easier for homebuyers to purchase the home of their dreams.
- Marcia Luke