HOW MUCH SHOULD YOU PUT DOWN ON A NEW HOME?
Find out all you need to know about down payments

How much should you put down on a new home?

April 9th, 2019
By: Northern Credit Union

Buying a new home is one of the most exciting life-steps a person can take. It’s the opening chapter of a young adult’s coming-of-age story, marks the beginning a new chapter for growing families, or it can mean the realization of a greenside dream in retirement.

This all sounds very romantic, right?

That’s because it is.

BUT.

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 parts of purchasing a new home is determining the down payment, and considering how this commitment 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 apply a down payment of at least five percent on the first $500,000 of a new home. Once the price of a home increases, 10 percent is required for the purchase price 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. The combined totals place your minimum down payment at $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 (if life could only be that simple).

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 and Canada Guaranty.  

Mortgage insurance is intended to protect lenders against losses in the event of default payments.

This doesn’t mean you, of course. 

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 one of the most significant financial steps most people will ever take. And the down payment is essential to making your dreams come true. Being informed on how the rules factor in to your plans makes the process more comfortable, and allows you to make the best decisions that fit your needs and goals.

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