Gone are the days when making a large down payment means you are rewarded with best mortgage rates due to recent Federal Government rule changes. What?!?! Prudent savers are now being charged higher, not lower rates! Read on to find out if you should buy now with a minimal down payment or keep saving.
Within the last 6 months, the government has changed the rules of lending and borrowing which further complicates the residential mortgage world for Canadian homeowners. Now borrowers must be stress tested, not against any lenders current best mortgage rate offerings, but against a new qualifying rate. Currently that “benchmark” qualifying rate sits at 4.64% for insured high-ratio mortgages. An insured high-ratio mortgage is when the down payment is less than 20% of the purchase price. Sadly, buyers who qualified 6 months ago for their dream home are now faced with the fact that they no longer qualify at that purchase price.
What if a buyer puts down less than 20 % to benefit from a mortgage rate savings of 0.20 of a percentage point? I say it’s not worth it. On a $500,000 house purchased with a 19% down payment, a five-year fixed rate mortgage at 2.59% would generate payments of $1,876 a month (a $9,720 mortgage insurance premium is factored into this). With a 20% down payment and a mortgage at 2.79% with no added insurance premium, the monthly cost is $1,850.
An additional benefit of having a 20-per-cent down payment is if house prices should fall, you don’t have to worry about your home being worth less than what you owe on your mortgage.
Mortgage Lenders and Brokers now have a chart of rates that is used to determine what each potential borrower is offered. When you buy a home or refinance one you already own and want to know what a lenders best rate is, be prepared to answer a number of questions. The following are just a few questions which will ultimately determine what “your” best rate will be:
- What is the purchase price or approximate current value of the home?
- What is the down payment or current mortgage amount?
- Is it owner occupied or rental?
- Are you purchasing, refinancing or just want to switch your current mortgage from one lender to a different one?
Purchasing a home is the single largest investment most people will make in their lifetime. It’s a complicated world for getting a new mortgage, renewal, refinance or switching to another lender. So ignore the disrespect from lenders and make that 20% down payment where possible even though the best rates are now reserved for those who put down less than 20% down payment. This then places a greater need for home-buyers and homeowners alike to seek out the expert advice of a professional mortgage expert. The percentage of the mortgage market that goes to mortgage brokers continues to grow. More and more people are seeing the value of using the more experienced Mortgage Broker versus the bank. More options means a greater chance of success.
Jackie Woodward is a 35 year Mortgage Professional. With her extensive knowledge and experience you can put your trust in this seasoned professional. #benefitfromexperience Contact the MortgageGirl at firstname.lastname@example.org, 780-433-8412 today!