Why a Big Down Payment is Better

First time home buyers look to their families, the media and the Internet for all their information on how to buy a home. As a result they know that they need 5% of the total home purchase price to buy the home of their dreams. While this is true there are a few things that family may not tell you or they may not be aware of. 

    Putting down as much as you can afford is a great idea. We have all heard that mortgage rules are tightening, the economy in Alberta is down  and lenders are being a lot more selective in who they give mortgages to. What you may not have heard is that the mortgage insurers, CMHC, Genworth Financial and Canada Guaranty are also looking at lenders more carefully before approving mortgage default insurance. They are looking closely at employment, credit and how likely you are to stop paying your mortgage. While 5% is the minimum, if you have a few late payments from your college days or a collection from a cellphone company on your credit report, they will think twice about giving you an approval. However, if you put 10% down they will look at your differently. Putting twice the minimum down payment shows commitment. It shows that you have “skin in the game” and are less likely to default on your mortgage. If they are reluctant to approve your mortgage , a higher down payment can sway their decision.

   The second advantage of a larger down payment is lower monthly payments. Let’s face it, when you get into a home , your paid off car will eventually need to be replaced and you will now have car payments and repairs chipping away at your monthly income. If you are newly married, child care expenses, baby furniture and starting an RESP will come up. You may be able to afford higher monthly payments but you will be better off down the road if you have lower payments.

    The third advantage is a lower CMHC premium rate. The bigger your down payment, the lower the risk to the mortgage insurer and the rate that they charge you.  With 5% down you must pay 3.60% on the mortgage balance. On a home purchase of $350,000 this comes out to a premium of $11,970.  

10% down results in a lower premium of $7560 and if you can make a 20% down payment you can avoid mortgage default insurance and pay $0 .

Down Payment	Premium	Amount	Savings
5%	3.60%	$11,970	0
10%	2.40%	$7560 `	$4410
20%	N/A	$0	$11,970

  

Finally, the bigger your down payment the smaller your mortgage balance is to start. As a result you will save lots of money over the term of your mortgage.

A 5% down payment will result in a payment over 25 years of $115,381 of interest. 10% down lowers this to $108,042 and 20% down lowers this to $93,786.

In other words, if you can come up with a 20% down payment you will save over $21,000 in interest over term of your mortgage. This is based on today’s historically low interest rates. I’m sure that sometime over the next 25 years rates will go up to the 5.79% that people were paying 6 years ago and they could go higher.

    In conclusion, if you have a chance to put more money down on the purchase of your new home, you should consider it. You can save money big time by doing so. 

for more information on this and other mortgage topics , visit http://davidcooke.ca or call David directly at 403-836-1201

    

What's happening to the Calgary Spring Home Buying Market?

The newspapers have been telling us that it is now more difficult to qualify for a mortgage. Housing sales have dropped by 20% in Vancouver. So, what's happening in Calgary?  Many homes are now receiving competing offers from purchasers. Why is this? 

Well if you check with the Calgary Real Estate Board, (CREB) website you will see that the number of active listings for this time of year are down 20% from last year. As a result the most desireable homes are selling quickly. What does that leave for you if you missed the house of your dreams?

   Make another home , the house of your dreams with the Purchase Plus Improvements  program from CMHC and Genworth Financial. These are the people who insure your mortgage against default and they want you to have a nice house. 

     How does this work? If you find a house in an older neighbourhood you may love the location but not care too much for the house. You know the place, it's right across the street from a school and a park, within walking distance of public transportation but it was built 40 years ago and it has lime green wall to wall carpeting combined with a basement with fake wood paneling. 

   If you think that you will have nightmares waking up to this 70's creation, don't worry.
 Take a trip to a home renovation store like Home Depot and get a quote on new Burber carpeting.
Make an offer on the house and then have your mortgage broker submit your offer with the new carpeting quote to a mortgage lender under the Purchase Plus Improvements program.
 If it is approved your real estate lawyer will receive 2 cheques. One for the purchase of the home and a second one to cover the renovations. When they are complete, the lawyer will pay out the renovations. Sound simple? It is . If you want more information on the program you can check it out here. If you want to know if you would qualify for this program contact me at my website.

David Cooke is a Calgary mortgage broker with Dominion Lending Centres Westcor in Calgary Alberta.