November 3, 2020 • Buying
The Down Low about Down Payments
By Kate Barker
Buying a home is a big financial decision. Are you prepared with a down payment?
In Canada, there is a minimum 5% down payment required on all real estate purchases up to $500,000. Anything over $500,000 requires a 10% down payment on the additional cost. For example, if you are purchasing an $900,000 property, you’re required to have 5% down for the first $500,000 and 10% for the remaining $400,000. The minimum down payment would be $65,000.
Generally speaking, a larger down payment is better. Anything less than 20% of the purchase price requires the mortgage to be insured. The insurance protects the lender as well as the buyer against default. “A lot of people don’t realize that when you have an insured mortgage, you actually get best rates,” says Shannon Hendrikse, Accredited Mortgage Professional and Owner of Canmore Broker Inc., “So with a lesser down payment, you actually get best rates available because there’s a little less liability.”
One of the down sides of insuring a mortgage, however, is the premiums you have to pay the insurance company. “As soon as you get 20% down, you don’t have to have insurance. This means you don’t have to pay the premiums, which are added to your mortgage at the beginning,” says Hendrikse, “If you don’t have the insurance companies involved, but your down payment is still fairly low, the rates are usually a bit higher. As you start getting more and more of a down payment, they start going back down again.”
But what if you have no down payment at all? According to Hendrikse, that doesn’t mean you’re out of the market. “If people don’t have a down payment, it doesn’t mean you can’t get a mortgage. We have some programs that will allow you to borrow your down payment.” These programs factor in the price of repaying the down payment in addition to the mortgage. Sometimes they come with a higher risk, but they can be an excellent option for some people.
“You can also have your down payment gifted from immediate family,” says Hendrikse. There are no hidden penalties for a gifted down payment, and it’s an easy process to set up. In a lot of cases, a gifted down payment can allow a new buyer to purchase their first home.
Knowing what’s available and what kind of down payment you need can make the process of house shopping that much easier. For the best advice on up-to-date rates, speak to a mortgage professional who knows the area where you’re looking to buy.