Why is Down Payment the Most Important Factor for a Mortgage?
When you wish to bring the dream of your own personal home to life, the mortgage rate is not the only thing to be considered. The down payment is an essential part of the whole process, and it’s imperative that you start saving for it in advance to avoid any problems down the road!
How Much Down Payment is needed?
Typically, most lenders ask for a minimum of 20% down payment for the overall loan, in order to ensure credibility and reliability. For those people who do not have that much in store, a 5% down payment along with mortgage insurance from the CMHC is the bare minimum.
However, if you have sufficient savings intact, it is always a good idea to exceed the predefined 20% and put in a larger down payment. There are a bunch of advantages for doing this; some of them are discussed as follows:
Reliability and credibility of the borrower is enhanced significantly when they put in a larger down payment.
· Lower Rates and Faster Debt Relief
When you put down a lager down payment, the overall principal amount of your loan automatically decreases, which makes you eligible for lower mortgage rates and enhanced equity value for your property. You save thousands of dollars of interest, and also have the option to speed up your payments and get rid of the debt at a faster pace!
How to Save up For Your Down Payment
Saving for a down payment can be a hefty burden on your overall budget, with the economy becoming tighter with each passing day. However, there are certain alternate ways to save for your down payment and make way for a new home at a faster pace. Take a look:
· Savings Account
Savings accounts and bonds are both safe and reliable modes to get cash for your down payment, however, remember that sufficient time and patience is needed for the cash to grow and mature before it can be used as an investment for your property.
The Registered Retirement Savings Plan is also a beneficial resource for first time homebuyers to borrow some cash against the retirement funds and invest it as down payment for the property.
The Cash back Mortgage
For those who do not have sufficient savings intact and yet need to invest in a property, they can opt for cash back mortgages. These mortgages allow the borrower to withdraw a 5% cash amount from the mortgage and use it for the down payment. However, the flipside of this type of mortgage is that the mortgage rates are considerably higher than the current rates in the market, which pile up to a hefty interest amount in the long run. Furthermore, as it takes time to build equity for the property from scratch, you risk losing your home in case of breaking the mortgage.
Get in touch with your mortgage broker today to learn more facts about down payment and start saving now! With rates at their historical lowest and more room for decrement possibilities in the future, now is the best time to opt for a Canada mortgage.