Understanding all of your mortgage options can be daunting, and there is no “one size fits all” approach. We carefully guide you through the process, ensuring you get the best mortgage with the lowest rate.
Canadian mortgages vary based on their loan-to-value or simply put, the percentage of the down payment. The home is an asset, securing the mortgage loan. The more that is owed relative to its value will dictate what type of mortgage is needed.
In the eyes of the bank, it's all about risk. Among other variables, such as Credit Scores and Income, the main factor is the properties loan-to-value. In fact, with a large down payment, a homebuyer with a low credit score will have the opportunity to purchase. However, not every buyer will have a large down payment at their disposal.
This is where the National Housing Act allows for a purchase with a lower down payment, as low as 5% of the purchase price. In order to achieve this, the mortgage must be insured to alleviate the risk from the bank, with the insurance premium passed onto the homeowner.
There are many differences between an Insured and a Conventional mortgage. The policies surrounding these are constantly changing, and there are also variations of each, depending on the bank. Here are some of the highlights of each.
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This option allows prospective homeowners to purchase with a low down payment by insuring the mortgage and reducing the bank's risk.
*Premium is subject to change based on the source of down payment.
This option allows prospective homeowners to purchase with a lower down payment and reduced insurer permium.
This option allows prospective homeowners to purchase with a lower down payment and reduced insurer permium.
Accumulating the down payment is the biggest challenge prospective homebuyers face. The down payment can come from several sources. According to the "2021 First-Time Homebuyer Survey & Financial Fitness Study*" performed by Sagen, the most common source for homebuyers ' down payment was their Personal Savings, followed by their RRSP.
The CRA offers a Home Buyers' Plan for those wishing to withdraw from their RRSP. The Home Buyers' Plan is a program that allows you to withdraw from RRSPs to buy or build a qualifying home.
Another common source many homebuyers have availed of are gifted funds from an immediate family member. Each lender will have its own policies surrounding this source of down payment. Alternatively, you can borrow part or all of the down payment. Borrowed down payments are not accepted by all lenders and come with additional qualifying criteria.
Borrowed
Cash Advanced from a Line of Credit.
Gift
Gifted Funds from an Immediate Family member.
RRSP
Investments such as an RRSP, TFSA, and/or Mutual Funds.
Personal Savings
Accumulated Savings in a Canadian Bank Account for a minimum of 30-90 days.
*Study completed by Environics Research on behalf of Sagen and in association with the Canadian Association of Credit Counselling Services. First-time homebuyer study findings in collaboration with Royal LePage.
For more information on Canada Revenues Agencies (CRA) Home Buyers Plan (HBP) please visit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan.html
The Rate Illusion
Mortgage interest rates are important, but there is typically a reason why an interest rate is low or high behind the scenes. That is why it is best to look at the cost, how much interest you are paying. After all, 2.05% looks better than 2.24%, right?… Not if it means paying an additional $15,760.94, as shown in the example below.
An insured mortgage will have a lower interest rate but at a cost. There is a premium, and it is rolled into the mortgage. Not only do you have to account for this amount, but because it increases the balance, it now increases the amount you pay in interest.
While a conventional mortgage will have a higher interest rate, there is no insurance premium. Even with the difference in rates, conventional mortgages had a lower cost.
| Insured Mortgage | Conventional Mortgage | |||
|---|---|---|---|---|
| Down Payment | 5% | 10% | 15% | 20% + |
| Purchase Price | $325,000 | |||
| Required Mortgage | $308,750 | $292,500 | $276,250 | $260,000 |
| Insurance Premium (%) | 4.00% | 3.20% | 2.80% | 0.00% |
| Insurance Premium ($) | $12,350 | $9,360 | $7,735 | $0.00 |
| Total Mortgage Amount | $321,100 | $301,860 | $283,985 | $260,000 |
| Interest Rate | 2.04% | 2.24% | ||
| Amortization | 25 Years | |||
| Monthly Mortgage Payment | $1,365.91 | $1,284.06 | $1,208.03 | $1,106.00 |
| Insurance Prem. (including interest) | $15,760.94 | $11,944.37 | $9,871.28 | $0.00 |
| Total Interest Paid on Mortgage | $88,672.04 | $83,359.46 | $78,422.55 | $71,799.32 |
This product provides qualified borrowers with an opportunity to own a home with as little as a 5% down payment.
A unique mortgage product that allows qualified borrowers to make their new home just right for them, with tailored improvements, immediately after taking possession of the purchase property. Including these costs within their mortgage.
This program is designed for self-employed borrowers who do not have a traditional source of income. This allows eligible borrowers with limited documentation to obtain a mortgage with a 10% down payment.
A multi-stage program designed for those looking to build a custom home.
A special mortgage product that allows qualified borrowers with strong credit to take a lump sum of cash, between 1-5%, out upon closing. Certain conditions may apply.
A vacation home, second home, or cabin. This product allows qualified borrowers to purchase a second property with an affordable monthly payment with 5% down payment.
This program enables people to help buy a home for immediate family members with as little as 5% down payment.
Qualified homebuyers who have immigrated or relocated to Canada within the last 5 years are eligible to purchase property with as little as a 5% down payment.
This program helps make it possible for a qualified borrower with strong credit to the borrower the 5% needed to purchase a home.
This allows qualified borrowers to purchase a rental property with as little as a 20% down payment.
A HELOC lets you leverage your home's equity which allows the homeowner access up to 80% of the home's equity at any time.
A mortgage product where interest-only payments are made. Low payments free up cash flow for other purposes—for example, those who want to access cash for other investment opportunities.
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