Ironically, for many new home buyers, these types of mortgages are not ‘specialty mortgages’, but the norm. First time home buyers, or any home buyer for that matter, are able to purchase mortgages at the lowest interest rates with as little as zero 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) or Genworth. These mortgage insurance companies operate separately from the mortgage lender through which your mortgage is held and charge a fee depending on the size of your down payment. As we can see, the less down, the higher the % fee. Any mortgage with a down payment of 20% or less must be insured.
|
Up to and including 80% |
1.00 |
|
Up to and including 85% |
1.75 |
|
Up to and including 90% |
2.00 |
|
Up to and including 95% |
2.75 |
|
Up to and including 97% |
2.90 |
|
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 Ontario 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).
The details of such mortgage insurance should be discussed based with me, your local mortgage expert.
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