What's the smallest down payment needed to buy a home?

When looking to purchase a property it is important to understand the requirements to secure a mortgage. There are many factors that go into qualifying for a mortgage however the most common question people ask me is:

"How much money am I required to put down when purchasing?"

The answer to this question is based on a sliding scale depending on the value of the property that is being purchased.

If you are purchasing a property for under $500,000 you can put as little as 5% down.

If the property is selling for over $500,000 but under $1,000,000 the least amount you are required for a down payment is 5% on the first $500,000 and 10% for every dollar above $500,000.

For example:

Property for sale for $600,000 requires a minimum down payment of:

• 5% on the first $500,000 or $25,000 &

• 10% on the amount above $500,000 or $10,000

• For a total of 5.83% or $35,000

For any property that you are purchasing over $1,000,000 the least amount you are required to use for a down payment is 20%.

It is important to understand that if you are buying using less than 20% as a down payment you are required to get mortgage default insurance. The insurance premium will be added to the mortgage amount. To learn more about mortgage default insurance click here!

If you have any questions about a down payment or any other part of the mortgage process please feel free to reach out!

You can book a call directly into my calendar here.

I love to talk about mortgages!

BoC January 2021 Rate Announcement

How do these bank meetings affect me?

The Bank of Canada meets eight times a year to set the Benchmark interest rate or overnight rate. This rate is used to determine interest rates Canadian's get on mortgages, credit lines, savings accounts and other products.

If the bank wants to stimulate the economy they cut the rate. This encourages borrowing and investing. When they want to slow down the economy they increase the rate.

What happened today?

In the weeks leading to today's announcement, some analysts were predicting that the bank may make a micro-cut to its overnight rate however, the bank held tight maintaining the rate at 0.25%

This really should not come as a surprise to anyone as the bank has been extremely candid with the public stating the rate will not change until 2023.

The bank is also keeping pace with the Quantitative Easing program by continuing to inject $4 billion dollars a week into bonds.

What does this mean for mortgages?

If you have a variable-rate mortgage your current interest rate will not change and as mentioned is not projected to rise until 2023.

If you have a fixed-rate mortgage today's announcement has no impact on your current payment until renewal. If you are up for renewal before 2023 it's unlikely that rates will increase drastically before then but especially while the bank is purchasing bonds at the current pace.

Why did the bank decide to keep rates at current levels?

The bank has mentioned in the past that they do not expect our economy to get back to pre-pandemic levels until our inflation rate is able to stabilize at 2%. We are currently well off this target. You can read more about inflation in the full report below.

The latest lockdowns combined with delays in the vaccination schedule also create economic uncertainties. Until we are able to fully reopen and confidently return to normal life it is doubtful that the bank will make any changes to either the rate or the quantitative easing program.

Now maybe a good time to talk mortgage!

Now is a great time to have a conversation about mortgages. Whether you have one now or are looking to get one in the future, with rates at all-time lows you have many options.

If you have any questions about today's Bank of Canada's announcement or anything else mortgages, remember that my door is always open and I love to talk mortgages!

Click here to book directly into my calendar

What happens when interest rates double and my fixed mortgage is up for renewal!

Triggered last spring by the pandemic, economic uncertainty caused interest rates to dip to all-time lows. Many Canadian homeowners now have fixed-rate mortgages locked in, but what happens when rates start to rise or even double?

When people think that mortgage rates have doubled they immediately think that payments have increased by 100%. This is not the case.

In the below vlog I break down the math on how your payment would change if you needed to renew and interest rates have doubled.

It's unlikely that rates are going to double!

Most economic analysts are confident that interest rates will not increase in the foreseeable future. Even though the scenario of rates doubling is unlikely let's discuss what would happen to your payment per $100,000 borrowed if it did.

Each $100,000 in mortgage money will create a $423/month mortgage payment.

To come up with this calculation I am using the following numbers:

• for each $100,000 borrowed

• Amortization: 25 Years

• Term: 5 Years

• Rate: 2%

After the 5 year term, each $100,000 originally borrowed now has a balance of $83,770. Continuing repayment on the original amortization to calculate the payment for the second term we will now use these numbers:

• $83,770 for each $100,000 originally borrowed

• Amortization 20 Years

• Term: 5 Years

• Rate 4%

As mentioned above each $100,000 originally borrowed is now $83,770 at 4%. This makes your payment $605/month. An increase of $180 per $100,000 originally borrowed.

The actual mortgage payment increased by 30%. It did not double.

If you can't afford an increase you still have options!

Now a 30% increase in payment is huge, but it is not a full 100%. If you are unable to afford your payments you do have options. Among these options, you could look at refinancing to increase your amortization period back up to 25 or even 30 years to lower your payment.

If you have any questions about this or any other mortgage-related topic, please feel free to reach out to me anytime. I love to talk mortgages!

Book a call with me directly here!