HOW MUCH SHOULD YOU PUT DOWN ON A NEW HOME?
FIND OUT ALL YOU NEED TO KNOW ABOUT DOWN PAYMENTS
Buying a new home is one of the most exciting purchases a person can make. marks the beginning a new chapter for growing families, or it can mean the realization of a dream in retirement.
Before you unlock the door for the first time and the dream becomes a reality, there are many important factors to consider.
One of the most important steps in purchasing a new home is determining the down payment, and considering how the purchase of a home will affect your financial health moving forward.
HOW MUCH DO I HAVE TO PUT DOWN?
The answer to this question needs to be approached from a couple of different angles as your required down payment is affected by the home’s purchase price.
At the most basic level, homebuyers must make a down payment of at least five percent on the first $500,000 purchase price of a new home. Once the price of a home increases, 10 percent is required for the purchase price difference up to $999,999.
For example, if the purchase price of your home is $250,000, the minimum down payment is $12,500.
What if the purchase price is $600,000? The minimum required down payment is five percent on the first $500,000, totalling $25,000. On the remaining $100,000, 10 percent is required, totalling $10,000. So the total required down payment would be $25,000 + $10,000 or $35,000.
Looking for a home valued over $1,000,000? If so, your required down payment increases to 20 percent of the purchase price.
BUT WAIT, THERE’S MORE. WHAT ABOUT MORTGAGE DEFAULT INSURANCE?
There’s a little bit more to your down payment than the required percentages above.
As a homebuyer, if your down payment totals less than 20 percent of the home’s purchase price, you must obtain mortgage default insurance, which is offered through the Canada Mortgage and Handling Corporation (CMHC), Genworth or Canada Guaranty.
Mortgage insurance is intended to protect lenders against losses in the event that the borrower do not make your required payments.
It’s important to understand that mortgage default insurance premiums are tiered depending on the size of your down payment.
It’s best to explore what financial scenario works best for you. A mortgage calculator is a great tool for this.
And if you’re like many people and have questions about mortgage insurance, you can book an appointment with a Northern advisor for full details.
YES. YOUR DOWN PAYMENT AFFECTS YOUR MORTGAGE.
How much you put down on a home is going to affect your mortgage payments. A bigger down payment can mean thousands of dollars saved in interest over the long-term.
While it’s important to factor in your down payment when it comes to big-picture financial planning, it’s equally important to explore the best options for mortgage rates, as this will play an essential role in determining affordability.
Luckily for homebuyers, there are some good mortgage rates available, plus you can apply online which makes things super easy.
IN THE END.
At any stage in life, buying a home is a significant purchase. The down payment is essential to making your dreams come true. Being informed on how the rules factor in to your plans helps to ensure you make the best decisions that fit your needs and goals.