Oct 20, 2017 

Greater Saving with a Larger Down Payment

The size of a down payment can vary. Depending on the type of mortgage, down payments generally range from 5% to 25% of the purchase price.

To obtain a conventional mortgage , home buyers are required to put down at least 25% of the purchase price or appraised value (whichever is less) as a down payment. If you don't have the necessary time or resources to save a full 25% down payment, you can choose a high-ratio mortgage and buy a home with a down payment of as little as 5% . This option is called a high-ratio mortgage and it requires you to purchase default insurance.

Whether you choose a conventional or a high-ratio mortgage, one thing is almost always certain: the larger your down payment, the more you save in the long run. A larger down payment --

  • Reduces the amount of your monthly principal and interest payment

  • Reduces the total amount of interest you pay over the life of your mortgage

Ask about the RSP Home Buyers' Plan

The RSP Home Buyers' Plan (HBP) lets a first-time buyer withdraw up to $20,000 from RSPs for a home purchase. The withdrawn amount must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn. If the full $20,000 is withdrawn, the minimum annual repayment is $1,333 . If less than the minimum is repaid in any particular year, the balance is added to the taxpayer's income.

Want more information? Check the Canada Customs and Revenue Agency Publication .

Insuring Your High-Ratio Mortgage

CMHC or GEMICO may insure a mortgage for up to 95% of the lending value of the house. Therefore, purchasers only need a 5% down payment. Eligible borrowers include anyone who buys a home in Canada intending to occupy it as their principal residence.

Purchasers can use up to 32% of their gross family income for payments of mortgage principal and interest, property taxes and heating. A buyer's total debt load (including consumer loans, etc.) cannot exceed 40% of the gross family income.

People who insure a mortgage loan with CMHC or GEMICO pay an application fee and a premium. The application fee ($75 - $235 ) covers the costs incurred by the insurer to review the application. The premium is based on the down payment and loan amount. Typical fees range from 1.00% to 3.25% of the principal amount of your mortgage.

Cost:

Premiums range from 1.00% to 3.25% of the mortgage loan amount and can be paid up front or added to the principal amount of the mortgage.

Loan Amount:

Up to 95% of the lending value of the house.

Mortgage Term:

To be set by the lending institution.

Max. House Price:

Varies by market.

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