The Rundown on Down Payments

Making a down payment is one of the biggest decisions you’ll face when purchasing a home. Naturally, you may have a few questions about how the process works, such as: What’s the minimum amount you can put down? How will it affect your mortgage? And where can you get the money?

Fortunately, we have all the answers to your down payment questions.

What is a down payment?

Simply put, a down payment is the amount of money you put towards the purchase of your home. This amount is then deducted from the total price of the home, with the remainder to be covered over the course of your mortgage.

What’s the minimum amount that you can put down?

In Ontario, the minimum down payment you can make on a house under $500,000 is 5%.

For houses more than $500,000 but less than $1,000,000, the 5% minimum down payment applies to the first $500,000, while 10% is applied to the remainder. For example, if your home costs $700,000, your down payment for the first $500,000 would be 5% ($25,000), and 10% for the remaining $200,000 ($20,000)

For houses over $1,000,000, the minimum down payment is 20%.

What is mortgage loan insurance?

Mortgage loan insurance (or default insurance) is designed to protect the lender in the event that you’re unable to meet your mortgage payments. It is mandatory for those with a down payment lower than 20% to obtain mortgage insurance, though you may be required to do so under certain programs even if you have a 20% down payment.

How does your down payment affect your mortgage?

The higher your down payment, the lower your monthly mortgage payments. Likewise, higher down payments mean lower mortgage loan insurance rates, with premiums ranging from 0.6% to 4.5% the amount of your mortgage.

With less than 20% down, you can only amortize your mortgage over 25 years. With more than 20% down you may qualify to up to 30 year amortization.

Can you borrow the money for your down payment?

Provided that you meet the lender’s minimum requirements, in many cases you will be allowed to borrow some of the money for your down payment. There are a number of ways to go about doing this.

The first is to take out a line of credit, a type of loan that allows you to borrow money up to a certain limit. Another, less common, option is to use a personal loan. However, doing so may affect your qualifying ratios.

Can I use funds from family as my down payment?

You can also use gifted funds from immediate family members for a down payment. These funds must be gifted without a re-payment plan.

If you’re looking to buy a new home or property and want to learn more about the process, including your down payment options, contact Personal Choice Mortgage Services and schedule a free consultation with a knowledgeable and experienced mortgage broker who can answer all your questions and help steer you in the right direction.

EMAIL: info@pcmortgages.com

PHONE: 905-318-1414

TOLL FREE: 1-877-318-4141

By: Graeme Carey