With all the changes that have occurred in the last year regarding Ontario mortgages, there are a lot of misconceptions as to what you can and cannot do with your mortgage. One common mistake is that many people here in London think that you need 15% or 20% down payment to buy a home. This is absolutely not true. Whether you currently own a home or not, if you are buying a home to purchase as your principal residence (meaning you will be living in that home), you just need 5% down payment.
This common misconception could be caused by misleading information in the newspaper. As a Mortgage Agent, even I am confused by some of the information I read out there. Let me try and explain some of the differences that can arise for the different mortgage situations.
Firstly - if you are buying a home (as I mentioned above), the minimum down payment is 5% of the purchase price. That applies whether you are a first time home buyer or an existing home owner who is selling their current home and buying another home.
Some lenders even have 5% Cash Back offers and allow you to use that Cash Back towards your down payment. You will still need to come up with approximately 1.5% of the purchase price to cover lawyers’ fees and disbursements, but these types of Cash Back programs allow you to get into home ownership with minimal money out of pocket. Words of caution – Cash Back mortgage programs do carry a higher interest rate and you do need to have very good credit in order to qualify for these programs.
Also, there is a program called “Secondary Home” through CMHC (Canada Mortgage and Housing Corporation). Under this program, you can buy a home with 5% down payment as long as an immediate family member (son/daughter/brother/sister/parent, etc) will be living in the property on a “rent free” basis. That basically means that you cannot have any rental income coming in to support the mortgage payments on this secondary home. As long as you qualify to carry that mortgage along with any other liabilities in your name, then you can buy it with minimum of 5% down.
Secondly – if you are an existing home owner and wanted to “refinance” your mortgage in order to pull equity out, the maximum amount you can mortgage your home to is 85% of the value of your home. That means that 15% equity must remain in the home at all times. This is one of the changes that the government just made recently. I do have mixed emotions about this limitation, but I will save that for another blog post.
Thirdly – if you want to buy a rental or investment property, then the minimum down payment is 20% of the purchase price.
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671