Ernie Hills

Mortgages and Down payments

High Ratio Financing.
A 5% down payment achieves a ratio of 5% down payment to a 95% mortgage.
Example:  $200,000 property, minus 5% which is $10,000 = mortgage of $190,000.00
(Normally, these figures range from a ratio of 10% down payment to 90% mortgage to as much as 20% down payment and 80% mortgage. )

This type of mortgage is called A High Ratio Mortgage and must be insured by the CANADA MORTGAGE AND HOUSING AUTHORITY. (CMHC) This agency is government sponsored and its sole purpose is to help Canadians buy their first home.
Your ability to buy a home with this type of financing is approved or rejected based on their decision alone.
They are quite fair and as far as I can see, having a reasonable credit record, you should have approval without too much stress or delay. (I have seen approval in as quick as a few hours to as much as 5 days, depending on their work load.)

Advantages
The biggest advantage that this type of mortgage offers is it gives you an opportunity to get into the market and buy something.
If you have a good income and can manage a higher mortgage payment within the GDS guidelines currently set by CMHC and the banks, then you will become one of the new property owners.
Disadvantages.
This type of mortgage must be insured with mortgage insurance which is traditionally up to 3.75% of the value of the mortgage. This means higher payments and therefore more interest in the life of the mortgage paid to the financial institution.
Example:  The $190,000 mortgage will have as much as a 3.75% bonus added to the value of the mortgage= $7125.00 which now makes your mortgage $197125.00.  A hefty increase.
 
 
 

Conventional Mortgage.
A 25% down payment achieves a conventional ratio of 25% down payment to a 75% mortgage. Today it is much more difficult to achieve this without the help of family or other means. It is by far the best and quite common. This takes the pressure off and saves you a great deal of money in carrying costs and mortgage insurance which can run into thousands of dollars. Not to mention the emotional stress which will not let up for the next 25 years.

Equity Mortgage
Equity Financing. Usually a 50% down payment will be accepted by almost any financial institution. This is secure and they know that if you default, there will be no trouble in recovering the full value of the mortgage.

This page was created with the help of Netscape 3 Gold. Ernie Hills 98.