When buying a home with a 5 to 19.99 percent down payment, mortgage insurance is applied in the form of an extra premium. This type of insurance is also referred to as; mortgage loan insurance, mortgage default insurance, or CMHC insurance, and the premium mitigates to a certain extent, the risks borne by lenders. In addition, it assists home buyers who could not in normal circumstances purchase a property to qualify as homeowners!
An added consideration in March this year was an increase in the premium amount which varies according to the percentage of the down payment. However, by making a down payment in excess of 20 percent, you will avoid mortgage insurance entirely in respect of an uninsured conventional mortgage. This has raised the question as to whether the premium increase justifies contributing to mortgage loan insurance? It’s an issue that could require the knowledge and experience of a Guelph mortgage broker to help you get a better perspective of the right course of action for your circumstances!
A primary benefit of a 20 percent mortgage down payment is your avoidance of a mortgage default insurance premium. This is a premium required by a lender should you make a down payment less than 20 percent. It is designed to protect the lender in the event of your defaulting on due payments. It is a premium that can rise over time and increase the rate of your monthly mortgage payment. Your mortgage broker in Guelph could explain the financial equations in detail, but briefly, although the insurance premium only adds a few dollars each month to your mortgage payment, it is still a significant amount when assessed over the full life of the mortgage.
It is a matter that will probably be determined by your personal and financial circumstances, and some good advice from your Guelph mortgage broker. However, keep in mind that if you reduce the premium rate, a higher premium rate will be applied to a lower down payment percentage. Another option is that you avoid the insurance premium completely with a 20-percent down payment! Another influencing factor is that if you wait to save up the required deposit, the issue of rising property prices could effectively make it more costly when you’re ready to buy.
Making a decision of this nature is never easy and in various respects, it’s wise to get some independent and experienced professional advice! At Mortgage Guys, we will help you get those questions answered and quickly begin an informed search for your new home. Contact our office today to learn more about how you can become pre-approved and let our lending team find you the right mortgage for your new home needs.