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The True Cost of Your Downpayment

October 29, 2012

According to the latest data from Will Dunning, Chief Economist of CAAMP, less than 4 in 10 buyers have 20% available for down payment. Mortgage insurance is mandatory for homebuyers without 20% to put down towards a purchase.

For example; putting down 10% on the average $350,152 home, means you will be required to pay a $6,302 insurance premium.

This adds up to $9,000+ in interest payments if you amortize it over 25 years.

For those purchasing from 2010 through spring 2012:

41% had less than a 10% down payment
21% had a 10-19.99% down payment
Only 39% put down 20% or more.

(First time buyers accounted for 56% of the dataset. The above percentages don’t add up to 100% due to rounding.)

Given the above numbers, having only 5-10% down payment available does not have to be a negative thing. Putting yourself in the position to purchase a home is still in your best interest as opposed to renting.

In another few months, we will get a better sense for how the most recent rule tightening has impacted nationwide mortgage volumes. It is easy to see how regulator’s insurance rule changes can rapidly alter home buying trends.

If you are being relocated and only have 5-10% to put towards the down payment, paying the insurance premium is better than remaining a renter. Benefits are available to homeowners that are not available to renters, especially if you are a member of the Canadian military or an employee of DND. In that case, further benefits are available to you; the military clause, which caps the penalty for breaking your existing mortgage and the military rate buydown, which allows you to lower the already discounted rates available to your mortgage broker.

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