Saving for a Down Payment

down payment minimum

Mortgage Down Payment

Today’s mortgage market allows potential homeowners to purchase their dream property in Canada with as little as five per cent down.

Any down payment that totals less than 20 per cent of the property value will require mortgage default insurance, and is considered to be a high ratio loan.

A conventional mortgage is defined as a mortgage loan where 80 per cent or less of the property value is financed through a lender. The percentage of your home value that is financed, or not paid for by the down payment, is defined in a Loan to Value ratio (LTV) (loan amount divided by property value). The LTV has a large influence on the mortgage product you will be eligible to qualify for on the purchase of your new property.

The greater the down payment you can accumulate, the greater the contribution you are making toward the principal value of your home, and thus the less of the mortgage loan amount you will be paying interest on over time.
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Determining home affordability

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Affordability is a hot topic in Canada's residential real estate market. While rising home prices mean greater value for homeowners, they can also translate to difficulties for prospective homebuyers. After all, a more expensive home will require more financing, something that can lead to more debt and ultimately foreclosure if a borrower is unable to stay current on their loan.

Data from the Teranet-National Bank's house price index shows that despite a decline in sales, home prices have continued to rise throughout the country. Overall, on a year-over-year basis, home prices increased 2 percent during May. This follows a 2 percent gain during April. Continue reading

Low mortgage rates can offset high prices

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While rising home prices are good news for sellers and buyers seeking a sound investment, they can also make it that much harder for some Canadians to enter into homeownership.

As a recent article from The Globe and Mail points out, even with mortgage tightening and a dip in sales, home prices continue to remain high throughout the country. As home sales decreased, so did the number of homeowners putting their properties up for sale, keeping the inventory of available properties fairly low, and, by extension, prices high.

"The latest data suggest that the softening in prices is likely to be milder than expected," the article stated. "In Vancouver, the city that was the frothiest in 2011 and the hardest hit by last year's correction, prices did decline. But they're already on the mend." Continue reading

Flaherty says government intervention is done, others say differently

While many industry observers feel that the mortgage restrictions put in place by Finance Minister Jim Flaherty could lead to a crash in the Canadian real estate market, Flaherty feels that current figures are a positive sign, according to Financial Post.

"I'm comfortable about where we are," he told Julian Beltrame of the Canadian Press. "I'm pleased in particular that the condo market in big cities has fallen back. I'm also pleased with some other moderation in new house construction and in demand for mortgages. I think these are healthy developments because I think we were beginning to see some indications of the beginning of a bubble."

Flaherty went on to tell Beltrame that he has no further plans to intervene in the Canadian mortgage market because he doesn't need to, indicating that the previous restrictions put in place have done a satisfactory job.

It's easy to see why this news could lead mortgage professionals to breathe a sigh of relief. The last mortgage restrictions to be put in place, which included shortening the maximum amortization length on government-backed home loans from 30 years to 25 years, seemed to have a large impact on homebuyers when they went into effect during July 2012.

This also comes on the heels of rumors that The Office of the Superintendent of Financial Institutions Canada (OSFI) was considering limiting the amortization rate on uninsured mortgages to 25 years. Continue reading

Low mortgage rates remain despite government interference

It seems that not every member of the Conservative cabinet is a huge fan of Finance Minister Jim Flaherty's penchant for getting involved in the mortgage market.

According to a report from The Globe and Mail, Small Business Minister Maxime Bernier recently expressed his opinion regarding Flaherty's meddling in the world of mortgage rates. The verdict? Leave the market alone.

"Me, personally, I would not dictate to businesses what prices to decide," Bernier said. "It's the market. It's supply and demand that decides the prices. It is the case for interest rates, it is the case for other products too."

Of course, Flaherty has critics outside his party as well.

"We either have a competitive mortgage market or we do not," said Bob Rae, interim Liberal leader. "And it's clear to me that Mr. Flaherty would prefer to have a cartel where… he and his officials are setting the interest rates for every mortgage in this country."

The criticism being leveled at Flaherty is in regards to his asking both Manulife Financial to withdraw their discount on five-year mortgages, as well as complaining about the Bank of Montreal lowering it's five-year mortgage rates. Continue reading

Avoiding homebuying mistakes

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Everyone makes mistakes, but when it comes to buying a home, those mistakes can be costly. According to data from the Royal Bank of Canada's 20th Annual Homeownership Poll, most Canadians admit to make some kind of mistake during the homebuying process. While 40 percent said everything went smoothly, 60 percent said there was some type of error on their part.

The following are the most common homebuying mistakes according to the RBC poll, as well as ways to avoid them. Continue reading

Financing options exist for savvy buyers

Many Canadians, especially those who belong to the so-called Generation Y, are less than confident when it comes to their chances of financing a home purchase.

Data from real estate firm Royal LePage shows that more than 72 percent of survey respondents born between 1980 and 1994 said they were pessimistic about their chances of becoming homeowners due to housing prices.

In addition to young homebuyers, 66 percent of baby boomers who took the survey also said they were worried about being able to afford a home.

"Baby boomers have built homes for themselves," said Phil Soper, CEO of Royal LePage. "It's their children that are seeking to create a similar atmosphere of their own, even though new impediments exist for this younger generation." Continue reading

Saving on home loans

While household debt in Canada is at an all-time high, economists are saying progress is being made.

A report from Statistics Canada shows that the average Canadian household owed $164.97 in market debt for every $100 of disposable, after-tax income earned during the fourth quarter of 2012. This marks a new high for household debt, up slightly from $164.07 during the previous quarter.

However, Julian Beltrame, writing for The Canadian Press, reports that analysts are saying figures show improvements when it comes to debt, particularly related to housing.

"But the latest data represent progress in the effort to rein in risky levels of household debt in Canada … ," Beltrame writes. "The fourth-quarter increase in the debt ratio was the smallest in a year, while household net worth actually increased by 1.4 per cent, thanks to gains in the value of stock holdings and pensions. House debt to total assets and debt to net worth have come down over the past year. As well, household equity as a proportion of real estate they owned remained at about 69 per cent." Continue reading

Effects of mortgage restrictions continue to be felt

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While mortgage rates continue to hover near historic lows, there's no doubt that Finance Minister Jim Flaherty's mortgage tightening rules have cooled the Canadian housing market. Now, according to Will Dunning, chief economist at the Canadian Association of Accredited Mortgage Professionals, Flaherty's financing restrictions will also cool down another area of the Canadian economy: employment.

As reported by Canadian Mortgage Trends, a recent report from CAAMP forecasts that 190,000 jobs will be lost between the years 2013 and 2015 due to the mortgage tightening rules. This includes 70,000 jobs from the new construction market, along with 120,000 jobs in the resale market.

"To put this in perspective, the entire Canadian economy generates roughly 20,000 jobs a month…," writes Rob McLister for Canadian Mortgage Trends. "If his projections are correct, the new amortization rules eliminate almost 80% of a full year's worth of job production.

CAAMP shared these findings with policymakers in late February. We suspect the data won't result in any imminent rule loosening as the government wants to monitor the impact of July's changes further." Continue reading

Understanding mortgage insurance

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When it comes to home loans, there's plenty of talk about mortgage rates, but far less about mortgage insurance. While not as exciting as fluctuating interest points, mortgage insurance is still a vital part of the homebuying process for most Canadians. It's with this in mind that prospective homeowners should do all they can to understand what mortgage insurance is and how it works.

What is mortgage insurance?
Typically, if a homebuyer takes out a mortgage loan with less than a 20 percent down payment, mortgage insurance is required. This insurance protects lenders in case a borrower is incapable of making mortgage payments and defaults on a loan. It's important to remember that this coverage is only for lenders, not homeowners. In most cases, if a homebuyer is able to pay a minimum of 20 percent on a down payment, mortgage insurance is not required. Continue reading