Mortgage Blog
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What should you consider when getting a mortgage?
September 12, 2024 | Posted by: Amanda Bible
Most of the time the first two questions I am asked are How much can I be pre-approved for? And What is the lowest rate?There’s so much more to consider though so for the next few blogs we will talk about some of the things you should consider.
How much down payment should you have?
If you are buying a house for you to live in, a second home or a home that a close family relative will be living in then you have the option of putting less then 20% of the purchase price as a down payment. The minimum down payment required is 5% of the first $500,000 and then 10% after that up to $1 million. Over $1 million you need at least 20% of the purchase price as a down payment and potentially more as many lenders have a sliding scale and maximum mortgage so if you are looking at a house over $1 million be sure to check with your lender or broker to know where you stand.
As the average house price in Ontario is about $885,000 we will use that as our example
$500,000 @ 5% = $25000
$335,000 @ 10% = $33500
The total minimum down payment would be $58500
If you are going to put less than 20% down payment you will also need a default-insured mortgage. The premium for the default insurance depends on the amount of your downpayment to learn more about this you can visit the CMHC website here
https://www.cmhc-schl.gc.ca/consumers/home-buying/mortgage-loan-insurance-for-consumers/cmhc-mortgage-loan-insurance-cost
The default insurance premium is added to your mortgage and the PST on the premium will be due on closing day.
If you are getting an insured mortgage then you will need to fit into the default insurers' guidelines, a minimum of 600 beacon score, no more than 32% GDS ratios (the mortgage payment, heating cost, and property taxes) with no more than 40% TDS (all your debt payments including credit cards, car payments, child support, student loans, mortgage payment, property taxes, and heat). If your beacon score is higher than 680 you will be able to exceed those up to 39% GDS and 44% TDS. As well the insurer will have to approve the property so you will need to have a condition of finance on your offer to purchase to protect you in case the insurers don’t approve.
Default-insured mortgage require no longer than 25 years amortization (the length of time to pay off the mortgage) or 30 years if you are a first time home buyer and you are buying a newly built home.
A couple more benefits of having an insured mortgage is that you qualify for the best rates and if you decide to switch lenders you won’t need to be stress tested again (your GDS and TDS ratios have to be inline with the mortgage payment calculated with the interest rate at 2% higher than the rate you are getting)
