What is the minimum down payment required?
The purchase price will determine your minimum down payment.
If your purchase price is under $500,000, your minimum down payment is 5% of the purchase price.
If your purchase price is $500,000 to $999,999, your minimum down payment is 5% of the first $500,000, plus 10% of the portion.
If your purchase price is $1,000,000 or more, your minimum down payment is 20% of the cost.
The amount of your down payment affects what opportunities you’ll have for your mortgage. With the minimum down payment of 5% for properties under $500,000, you will have a larger mortgage and have to pay a mortgage insurance premium of up to 4%. While this might seem like the best option because you pay less upfront you will have to pay more in interest over time. If you make a higher down payment at the same interest rate you pay less over time.
That being said, a smaller down payment can lead to a lower mortgage rate Mortgages with a down payment of less than 20%, or high-ratio mortgages, usually have lower mortgage rates than low-ratio mortgages with a down payment of 20% or higher. This is because borrowers will pay for mortgage insurance such as CMHC, which offsets most of the risk to the lender. Lenders often offer low or minimum down payment mortgages. You must ask yourself is it benefical to pay the extra mortgage insurance?
Should I put 20% down?
If you can afford it, making a down payment of 20% or more will allow you to avoid having to pay for mortgage default insurance.
Making a down payment of less than 20% will limit your housing options in certain cities, such as Toronto where the average price of a home is approaching $1 million. If you require a longer amortization period, you will also need a down payment of 20% or greater.
You must also consider your closing costs. These costs, such as land transfer tax, legal fees, and moving expenses, can add up.
If you are a professional real estate investor, however, you may want to minimize your down payment in order to maximize your return.
Talk to your mortgage professional today call Sima Fisher 647 803 8811 or email simanationalmortgageloans@gmail.com
