When buying a home, knowing how much down payment you need is a key part of understanding your overall budget. In this episode we look at down payment calculations, how previous home equity is considered, and the role of insurance in down payments.
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Hi everyone, and welcome to another edition of Homebuyer's School. Today I'm joined by Troy Champ, a Mortgage Advisor with Mortgage Tree.
Today the question we're going to answer is:
How to calculate a down payment on a house?
You start with the minimum down payment:
- The minimum down payment is 5% of the first $500,000.
- If your purchase price is over $500,000,
- then it's 5% of the first $500,000 and
- 10% for anything over $500,000 up to $1 million.
- If it's over $1 million, then the minimum down payment's at least 20%.
If you are selling your property and you want to take that equity with you to the new property, then your down payment would be:
the summation of your equity in your existing house plus any other cash savings that you want to put towards the new purchase. That's your total down payment. You divide that by your purchase price and that gives you your percentage down
Is there a specific number that you are trying to reach if you're reselling your home?
Yeah, absolutely. It goes in blocks of five with insurers.
- Insurance is required if your down payment is under 20% down.
- Every 5% you put more down, the lower your insurance costs become.
- If you get to 20% down, your mortgage is no longer required to be insured, so you save those CMHC premiums.
Karl Yeh: Oh, nice. CMHC is Canadian ...
That's the Canadian Mortgage Housing Corporation, it's part of the government. [00:01:30]
Then there's two other insurers:
GE, the same company that makes the fridges, and then Canada Guarantee.
Karl Yeh: Okay, and same kind of process to get the mortgage through them?
Troy Champ: Yeah, it's the exactly same premiums, same process, absolutely.
Karl Yeh: Awesome. Do you have anything else to add?
Troy Champ: No, I think that's it.
Awesome, well thank you very much Troy. Thank you very much everyone for joining us, and we'll catch you next time.
Let us know if you have additional homebuying questions that we can answer by submitting them in the comments section below.
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About Troy Champ:
Troy is one of those uniquely capable mortgage experts who has refined his craft over 17 years of experience with two of Canada’s major financial institutions and then one of the largest mortgage brokerage firms in Western Canada. He is amongst a rare group of professionals who have funded over $500 million in mortgages over his career and received many top level awards for excellence.
A hallmark of Troy’s service pledge is unparalleled availability. While many will say they provide great service, Troy proves it day in day out without question. His clients are never left waiting for answers to their enquiries. Quite simply, his clients are thrilled to work with someone who says what they do and does what they say.