Minimum Down Payments & Mortgage Insurance
With the Fraser Valley and Vancouver real estate prices on the steady rise, how much will you need to provide for a downpayment? Let's break it down:
Homes Under $500,000
For homes under $500,000, you are required to have a minimum of 5% of the purchase price for a downpayment.
Homes Between $500,000 and $999,999
For homes between $500,000 and $999,999 you are required to have 5% of the first $500,000 and 10% for the remaining purchase price above $500,000
Suppose the purchase price of your home is $700,000 , You will calculate your minimum down payment by adding 2 amounts:
5% of the first $500,000 = $25,000
10% of the remaining $200,000= $20,000
Minimum Down Payment will be: $45,000
Homes 1 Million Dollars or More:
For homes over $1,000,000 you are required to have 20% of the total purchase price as a downpayment.
Why would I provide more than the minimum downpayment required?
If your down payment is less than 20% of the purchase price, you will be required to buy mortgage insurance. In some cases your lender may require you get mortgage insurance even with a 20% downpayment. This may be because you are self employed or have poor credit history.
Mortgage insurance protects the lender, not the buyer, in case you can't make your mortgage payments.
How much is Mortgage Insurance?
Premiums range from 0.6% to 4.5% of the amount of your mortgage and also depends on the amount of your down payment. The larger the downpayment, the less you pay in insurance premiums.
You can add on the cost of your insurance premium to your mortgage, or you can pay it in a lump sum. If you add it onto your mortgage, your premium will be subject to interest (at the same interest rate as your mortgage)
Homes in western Canada are not subject to PST on your mortgage premium, but in Ontario, Manitoba & Quebec they are.
The bottom line is, the larger a downpayment you can provide, the less your mortgage (and mortgage insurance premiums) will be. I always recommend my clients to have as much of a downpayment ready as they can before purchasing a home.