The Cost of A Downpayment For Homes in Canada

If you want to purchase a home in Canada, you do not have to pay for the property upfront. A downpayment is all you need then you repay the balance in installments. Simply put, a mortgage downpayment is an amount you pay upfront before you buy the home. It is usually expressed as a percentage, and it is calculated by dividing the dollar value of the down payment by the price of the home.

What is the minimum down payment required in Canada?

In Canada, homes have different prices, so the minimum down payment depends on the price of the home you want to buy.

If the property you want to buy costs less than $500,000, you are expected to make a down payment of 5%.

If the home costs you between $500,000 and $999,999, you are expected to pay 5% of the first $500,000 and then 10% of any amount over $500,000. In effect, if you are buying a house that costs $900,000, the minimum down payment is $65,000.

If you are buying a property with a purchase price of $1,000,000 or more the minimum down payment for this category is 20%.

When you take out a mortgage, the lender takes a risk on your behalf. To protect the lender in case you default, you are required to take mortgage default insurance. This is also called the CMHC, and it is required on all mortgages with a down payment of less than 20%.

According to official figures from TD Canada Trust Home Buyers Report, about 30% of homebuyers aim for a down payment of at least 20%.

The size of your down payment is important because it has an impact on three other factors. These are:

  • The price of the home you can afford
  • The size of the mortgage and your monthly or quarterly payment
  • The value and the amount of the CMHC insurance you pay.

1. Your down payment influences the home price you can afford

In Canada, the minimum down payment is 5%, so this benchmark is used to calculate what you can afford. In effect, you can guess your maximum purchase price based on the amount you can put up as down payment. Note that the down payment is a sliding scale, so the calculation depends whether the down payment you have made is more or less than $25,000. Now, let us look at some numbers to make things clearer.

If you have saved up $25,000 and you want to buy a home, the maximum home price you can afford would be $500,000. That is $25,000 /5=$500,000.

If your down payment is above $25,000, things get more complicated. For instance, you have saved $40,000, and you want to make a down payment with this amount. In this case, the maximum home price for you would be $650,000. That is: $40,000-$25,000=$15,000 /10%=$150,000+$500,000 =$600,000.

Of course, your affordability goes with your income and your debt level. For a more detailed analysis of this and other factors, you should consult a mortgage expert or visit our mortgage affordability calculator.

2. Your down payment affects the size of your mortgage and monthly payment

If you make a relatively large down payment, your monthly payment will be lower, and the interest rate over the life of the mortgage will be lower.

3. Your down payment determines the amount of CMHC insurance you pay

This is easy to understand. If you increase your down payment, your CMHC insurance premium gets smaller because it is calculated as a percentage of your total mortgage amount. If you need information about how the process works, just visit our insurance page.

Down Payment (% of Home Price)
5% – 9.99% 10% – 14.99% 15%-19.99% 20% or higher
4.00% 3.10% 2.80% 0.00%

Example to illustrate the effect of two different down payments
Now, let us assume you want to buy a home priced at $300,000. The interest rate is 3.00%, and the amortization is 25 years. You are not sure whether you should make a down payment of $25,000 or $40,000. Below is the long-term difference between a down payment of $25,000 and $40,000.

If you opt for a down payment of $40,000, the additional $15,000 will save you approximately $25,000 in interest rate over the life of the mortgage. Also, it also lowers your CMHC insurance payment by about $2,423. Of course, it pays to look at the big picture here. That additional $15,000 can be invested in stocks, bonds, mutual funds or precious metals. The smart move is to look at all the pros and cons then make an informed decision.

Mortgage down payment sources

Some of the best sources of capital for the mortgage down payment are accumulated savings, stocks, personal property or assistance from family and close relations. You can also raise the money from your Registered Retirement Savings Plan (RRSP) Home Buyer’s Plan. In fact, you can get up to $25,000 tax-free if you take this option.

Other non-traditional sources are borrowed funds and cash gifts from non-immediate family members. Note that if you get your down payment money from non-traditional sources, the CMHC will charge you an additional 0.15% if your down payment is less than 5%.

The Advantages of Buying a Townhouse in Canada

Row of Townhouses

By MarbleheadHighlands (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

There are many reasons why it’s in your best interest to think about purchasing a townhome. Townhomes often supply a larger safety and security environment, and simple to no care yards. Unlike a conventional single-family residence, there might be restrictions on how you can use your townhome or condo.

If you’re considering purchasing a townhome but aren’t certain if it’s the optimal/optimally decision, this article is for you. Then you have to discover your townhome and become prequalified for financing. If this is so, a townhome may be a right choice for your next home. Purchasing a townhome demands due diligence. If you get a townhome, you’re going to be certain to get much more for your financial plan.

Broadly speaking, townhouses for sale in Canada are inclined to be a little less expensive to purchase than detached homes. A townhome is often more affordable than a conventional single-family home. Additionally, townhomes provide many advantages of residing in a community, though a house is far more independent. Most townhomes incorporate an HOA fee which supplies a maintenance team for more small issues and repairs, along with landscaping and amenity upkeep. These townhomes are in excellent condition. Therefore it’s tricky to enhance that. If you’re looking around for a townhome in the Seattle region, you will find two potential types of home ownership.

Based on your location, it can be simpler to get townhomes than purchase foreclosed homes because there’s more competition for single-family homes. Surrey townhomes are located in the majority of neighborhoods. Be sure before you get a townhome to learn as much as possible in regards to the community so that you understand not only if it is a significant financial investment but also if it’ll be an excellent lifestyle fit for you and your loved ones. When you buy your townhome, you automatically come to be an integral component of a carefully-planned community.

buying a townhome

The choice to rent or purchase a townhome may also hinge on the chance of an excellent resale. It may also depend on your credit and financial state. Thankfully, provided that you make an educated buying decision, both housing styles are viable choices that will result in a secure and lovely setting to increase your family members.

What to Do About Buying a Townhome Before It Is Too Late

If you like simple living and don’t require a large place yet need each of the advantages of a single-family home, you’ll discover all that in a townhome. Townhome living is perfect for the ones that want the benefit of homeownership at a lower price and without a number of the maintenance chores that include a detached home. Discover why townhome living might be the perfect fit to suit your lifestyle requirements.

Purchasing a home, no matter how often you have done it, can look confusing and stressful. But buying a home for the very first time might just seem overwhelming. If you’re taking a look at the purchase of a house, among the benefits of moving into a place with an HOA is they take care of a lot of the simple maintenance and service functions connected with owning your house. Buying a home is a process which requires you to create decisions, but among the hardest to make is deciding on the sort of residence that you want to dwell in. Whenever you’re buying a new house, there are plenty of important questions that you should ask. Single family homes have a lot more space and privacy. Flipping houses may be one of the quickest methods to make a profit from purchasing and selling real estate. On the opposite hand, a conventional home can more easily accommodate bigger families who might need or want to have more room on a daily basis.

Important Notes When Buying a Townhome

Whether you’re a first-time buyer of a townhome, or you have obtained many times before, you will want to be confident that you’re receiving the best advice and comprehension of the way the procedure currently works from beginning to end. The lending company may consider the owner-occupancy rate locally. First-time homeowners frequently don’t know what things to ask, but even when you’ve owned a conventional home before you might not know about the idiosyncrasies of townhomes specifically.

Lending for Buying a Townhome

Purchasing Real Estate is among the biggest financial decisions you’ll ever make. If your premises is situated within a homeowners association, odds are, you will also pay a homeowners association fee. It will be your responsibility. If you’re going to be taking ownership of a townhome for a condominium, as opposed to fee-simple, the lending procedure is a little different. Therefore a condo operator can’t attach to the roof, as they don’t have exclusive usage, but a townhouse operator does, so can.

What is a Business Broker?

business-for-saleBusiness brokers are intermediaries who are dedicated to serving a seller and a buyer who desire to sell or buy businesses. As someone who sells companies, they are closely associated with real estate agents due to their services. While a real estate agent sells homes, commercial space, leases, business brokers are experts in the sale of already existing businesses and franchises.

Read the full article.

Real Estate and Your Asset Allocation

Real Estate

Rеntѕ are rіѕіng and they are rising fаѕtеr than аlmоѕt аnу оthеr іnvеѕtmеnt.

In a ѕmаll, оldеr ѕuburb оf Dеnvеr, Colorado rеntѕ іnсrеаѕеd 16.2% уеаr оvеr уеаr with a 95.4% оссuраnсу rаtе. San Jоѕе, Cаlіfоrnіа hаѕ іt еvеn better wіth аn increase of 16.3% аnd a 97.3% оссuраnсу rate ассоrdіng tо a rесеnt rероrt bу AxіоMеtrісѕ Inc., аn apartment mаrkеt rеѕеаrсh fіrm іn Dаllаѕ.

Portland, Sеаttlе аnd Bоѕtоn аrе also areas of thе соuntrу that hаvе ѕееn thе rеntѕ increase double dіgіt year оvеr уеаr.

As a rental рrореrtу owner mуѕеlf, I am personally ѕееіng thіѕ. I wаѕ heavily іnvеѕtеd іn the real estate mаrkеt аlоng with everyone еlѕе 10 уеаrѕ аgо. The dіffеrеnсе is thаt I nеvеr bоught a property thаt dіdn’t have a Plаn B. Actually, fоr mе, еvеrуоnе еlѕе’ѕ Plаn A wаѕ mу Plan B. I bоught for rental income, not ѕhоrt tеrm gаіnѕ. I dіd thіѕ fоr уеаrѕ аnd gоt uр tо аbоut 7 duplexes аt оnе роіnt untіl the gаіnѕ оn thе рrореrtіеѕ wеrе ѕuсh thаt thе іnсоmе bесаmе ѕесоnd fіddlе. And, I lucked оut. I ѕtаrtеd rolling the properties into еvеr nicer рrореrtіеѕ аnd thеn started ѕеllіng thеm. I had ѕоld аll but оnе рrореrtу bу thе tор оf the mаrkеt іn 2004.. I dоn’t lіkе to thіnk where I wоuld bе іf I hаdn’t sold them when I dіd.

Regardless, rents wеrеn’t grеаt bасk thеn. It wаѕ tоugh to fіnd rеntеrѕ аnd when уоu dіd, rаіѕіng thе rent on уоur tеnаntѕ wаѕ оut оf thе question. Rаіѕе іt аnd thеу wоuld lеаvе аnd уоu would bе out a соuрlе of mоnthѕ’ worth of rеnt.

Rents are great now. Thе rеаѕоn I gоt into thе рrореrtіеѕ іn thе fіrѕt place was fоr thе passive income thаt they gеnеrаtеd аnd smart іnvеѕtоrѕ are dоіng the same thіng.

Whеrе еlѕе саn уоu gеt раѕѕіvе income аt thіѕ lеvеl? 30% dоwn оn an іnvеѕtmеnt property can gеt уоu аlmоѕt 8% a year on thаt mоnеу. Thе рrореrtу vаluе оf thе rеаl еѕtаtе market mау not rеturn for аnоthеr 5 tо 10 years, but аt 8% a year I’m nоt rеаllу worried аbоut it. Tеnаntѕ wоn’t аlwауѕ bе a ріесе оf саkе and you will hаvе ѕоmе turbulеnt tіmеѕ.. Onе tеnаnt аlmоѕt tore оnе оf mу places to ріесеѕ, but thаt іѕ the рrісе оf rental оwnеrѕhір.

Wіthоut putting 20-30% down on individual properties and having tо worry аbоut new rооfѕ and bаd tеnаntѕ уоu can still take advantage of thеѕе returns оn rеntаl рrореrtіеѕ. Thеrе іѕ an еаѕіеr way with REITS, оr Real Eѕtаtе Invеѕtmеnt Trusts.

REITѕ аrе rеԛuіrеd to раѕѕ thrоugh most оf thеіr income to уоu аnd because thеу аrе trаdеd оn a ѕtосk exchange, they аrе much mоrе lіԛuіd thаn rеgulаr rеаl estate аnd уоu don’t have tо рау a rеаltоr. Onе more benefit іѕ thаt you саn individually сhооѕе сіtіеѕ аnd ѕtаtеѕ. Invеѕtіng іn сіtіеѕ lіkе Dеtrоіt rіght nоw іѕ not a ѕmаrt оr ѕtrаtеgіс mоvе.

I’m nоt ѕеllіng аnу REITs аnd іf уоu dо decide tо рurсhаѕе аn individual рrореrtу, mоrе роwеr tо уоu. Whаt I аm ѕауіng is thаt thеѕе hіgh rеntаl rеturnѕ are gоіng to bе attracting more and mоrе rеаl еѕtаtе іnvеѕtоrѕ, whісh wіll increase thе рrореrtу vаluе which in turn mау finally gеt uѕ оut of thіѕ rеаl еѕtаtе ѕlumр.