The mortgage options you qualify for depend on multiple factors. One of the most important being the down payment. The required minimum down payment in Canada is 5%. When purchasing a home exceeding $500,000 the down payment is then 10% for the amount exceeding. So, for a $750,000 home:
500,000 x 0.05 = 25,000
250,000 x 0.1 = 25,000
You would need a minimum of $50,000 to purchase a $750,000 home under these rules.
Any down payment under 20% is considered a high ratio mortgage. A high ratio mortgage requires default insurance or what is commonly referred to as CMHC (Canada Mortgage and Housing Corporation) insurance. This can be paid up front or added to the mortgage which you’ll pay interest on. The insurance interest on the mortgage depends on the size of the down payment.
5% down – 3.6% interest
10% down – 2.4% interest
15% down – 1.8% interest
Saving for a larger down payment is beneficial for avoiding interest on principal and insurance.
Other factors to consider are your credit score and debts. Prime lenders (banks/credit unions) and CMHC (if they’re insuring) will examine your credit history and TDS/GDS ratios. These ratios are calculated from your income and debts to give the lender an idea of what sort of payments you can afford. To avoid any hassles when applying for a mortgage, be sure to pay monthly debts on time and keep credits at a reasonable balance. A lender isn’t likely to approve a mortgage when someone is consistently unable or unwilling to make required monthly payments.
Mortgage options don’t end at credit problems. Having a down payment of 20% or higher will likely qualify you for a mortgage through a private lender. Private lenders aren’t so much concerned about your credit, as they are interested in the down payment and equity of the property.
For any questions or an estimate of what you might qualify for, fill out the form under the “Contact” tab. I will respond with an estimated mortgage amount based on the information provided. Thanks for reading!