How can banks offer such low down payment options?
Mortgage default insurance protects the lender against any financial loss if a person stops making mortgage payments, provided the lender has made a prudent lending decision and followed all of the policies of the mortgage insurer.
In Canada there are three companies that provide mortgage default insurance. Canada Mortgage and Housing Corporation (CMHC) is a federal government agency, and they have the longest history of providing insurance in Canada. The other is a private company called GE Capital and another called Canada Guarantee.
Which one you use is your choice but the costs are the same and to the average person it really does not matter. Having more than one insurer however is beneficial to the mortgage industry for many reasons the main one is that it provides more choice if one insurer declines your loan it is quite possible the other will say yes. Your Mortgage Professional can help you through this process.
Acceptable formats of down payments?
The most common form is your own personal savings. This can be in a savings account, GIC, term deposit, savings bond, stocks, mutual funds, and if you are a first time home buyer you can take up to $20,000 from your RRSP without paying taxes. Looks like you have chosen to purchase rather than rent.
Another common form of down payment is from a gift. The only restrictions to this is that it must come from a blood family relative, and that you must document the paper trail into your account prior to your possession date.
If you are considering borrowing from your RRSP there are a few things you should know. First, the money has to be in the RRSP for at least 89 days. You must be a first time homebuyer; you must repay the entire amount within 15 years (a minimum of 1/15 of the amount must be paid every year or it will be added to that years income and you will be taxed).
The main drawback will be that you are losing tax free compounding every year that the full amount is not put back, and this will hurt your long-term growth of your RRSP. Despite this it is often a smart move especially if this is your only option.
If you do not have all or a portion of your down payment right now you may qualify for our “No Or Low Down” Program.
Talk to one of our Mortgage Planning Specialists today.
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