When it comes to ‘ buy, is it better to make a big down payment? Since each situation differs greatly, we can not answer this question in the ‘ absolute. A decision must be made that takes into account your needs, your means and the market you are targeting.
However, here are some things to consider if you are thinking about the ‘ acquiring ‘ a new property by filing a down payment of more than 20%.
The time factor
If your goal is to take a few years to accumulate the down payment of 20%, the time and the vagaries of the real estate market will be determining factors.
In a real context for which you do not expect a significant increase in home values, the ‘ wait can be worth it. It is the same if we do not predict a sharp rise in rates ‘ interest to ‘ by the time you have accumulated your down payment. No one can predict the situation in a few years.
Be aware that put less funds to 20% do not give access to mortgages whose period of ‘ depreciation exceeds 25 years.
Mortgage Insurance Premium from CMHC
The government requires lenders to insure all mortgages with less than 20% down payment. The loan can be provided by CMHC, Genworth or Canada Guaranty. The premium is calculated based on a percentage that varies according to the value of the loan vis – à – vis the price of the property (0.6% and 4.5%.). The lower the portion of the down payment price, the higher the percentage. This amount is added to your monthly payments.
If clients give 20%, their interest rate could be higher with most lenders (the distinction is whether the loan is insurable or not). As a result, it may be more advantageous for a client to give 19% since the cost of the insurance premium plus the tax will be lower than the additional cost of interest. This is a consequence of the implementation of the new rules on conventional loans.
In Quebec, the QST is billed on the premium and this must be paid to the ‘ purchase. In total, this can amount to several thousand dollars.
By depositing a down payment of more than 20%, there is no need to insure a loan. Check out our article to learn more about CMHC’s mortgage insurance premium .
The new mortgage rules
In 2016, the federal government has introduced a measure to reduce the number of ‘ buyers placing in situations too risky. With the filing of ‘ a set of more than 20% funds, the new rules do s ‘ not apply. D ‘ elsewhere, check our text to learn more about these rules .
Buy undivided co-ownership
In Montreal, some condominiums are undivided. To become a buyer, it is mandatory to deposit 20% of the value of the residence in down payment.