For many new home buyers, these types of mortgages are not ‘specialty mortgages’, but the norm. First time home buyers, or any home buyers for that matter, are able to attain mortgages at the lowest interest rates with as little as 0% down. This is done through the use of mortgage protection insurance that is provided by a number of companies such as Canada Mortgage and Housing Corporation (CMHC). Mortgage insurance companies operate separately from and protect the bank or mortgage lender through which your mortgage is held. The mortgage insurers charge a fee depending on the size of your down payment. this fee is included in the total aount of your mortgage and thus does not have to be paid up front. As we can see, the lower the down payment, the higher the % fee. Any mortgage with a down payment of 20% or less must be insured.
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Up to and including 80%
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1.00 |
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Up to and including 85%
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1.75 |
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Up to and including 90%
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2.00 |
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Up to and including 95% |
2.75
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|
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Up to and including 100% |
3.10 |
These fees are based on the total original value of the mortgage and are then included in the total sum of the mortgage. So a $100,000 mortgage, zero down, would now be a $103,100 mortgage. Although it is preferable to attempt at least a 5% down payment (and a resulting 2.75% fee), a 100% mortgage can make sense since the value of housing in the Kitchener Waterloo area is forecasted to increase at a rate greater than 3% per year over the long term (not to mention the quality of life associated with owning a home). This said, it is always important to remember additional costs (closing costs) associated with purchasing a house that average 2-3% extra. These costs can be seen in my article here. Down payments or closing costs can be borrowed as long as debt service ratios are not over their limits (See lending criteria here).
Finally it is important to note, that if you would like to apply for a 0% down payment mortgage, your credit score must be very good, and you will have to borrow 5% of the down payment. In other words, a mortgage company will lend you 95% of the value of the home, and we will have to find the other 5% as a loan, either through cash back from a mortgage lender, or from a regular bank.
The details of such mortgage insurance should be discussed based with me, your local mortgage expert.
I am always available to help answer your questions.
www.brentrichardson.ca - brent@brentrichardson.ca
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