Home buyers: How large should your down payment be?

If you’re looking to buy a property such as a house or condo, you must cover the following requirements:

  • Properties that are $500,000 and less: Minimum 5% down payment.
  • Properties that are between $500,000 and $999,999: Minimum 5% down payment on the first $500,000 and 10% on the rest.
  • Properties that are $1,000,000 and more: Minimum 20% down payment.
  • Properties with an intention to rent out to tenants: Minimum 20% down payment.

Mortgage insurance:

Home buyers need CMHC mortgage default insurance when purchasing properties with down payments less than 20%. This is a premium that ranges from 2.8% to 4% of your total mortgage that you must pay. However, you can save on this premium if you can put together a 20% down payment.

 

Self employed borrowers

Any borrower who is self-employed or has poor credit may need to pay down payments that are larger than the minimum. First-time home buyers can apply to withdraw up to $35,000 of their RRSP to help cover their payment. Covering more of your down payment provides you with less debt and risk of your mortgage cost going up as rates rise.

 

It’s always better to pay a larger down payment. Ideally, you want to cover as much as possible without putting yourself in a difficult or poor situation. You’ll want to be able to pay your basic living expenses, mortgage, and other home ownership expenses comfortably. In addition, you must set aside money to act as an emergency fund for emergencies. If you have enough funds to pay more than a 20% down payment, you can apply for a home equity line of credit. You can use this line of credit as an emergency fund instead.

 

Your down payment must also make sense financially. For example, you should not take out all the funds from your TFSA if your expected return is high while interest rates are low. You have more earning potential to leave the funds in your TFSA than taking it out to cover a larger down payment. The same concept applies for using non-registered investments toward your payment.

 

You have questions regarding the downpayment or the mortgage in general for your purchase in Montreal? Contact Behrooz Davani real estate agent.

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