Are you buying house with less than 20% down payment?

Posted on: March 22, 2021

When it comes to buying a house, the biggest question is, am I eligible to buy a house with a minimum 5% down payment. If the answer is yes, what are the costs associated with less down payment, the house range, and how I can calculate mortgage affordability. These questions are already in the borrowers’ minds; however, they mostly come up with surprise when they know that they are subject to pay default insurance and PST on this insurance. In this blog, we would dig deep into Default insurance, PST on this insurance premium, and frequently asked questions.

What is Default insurance?
When borrowers buy a house with less than a 20% down payment, they are liable to pay for Default insurance. This insurance would protect lenders if borrowers missed their monthly mortgage payment due to unemployment or if there is any property damage. This insurance is included into your mortgage amount. The Canada Mortgage and Housing Corporation (CMHC), Genworth and Canada Guaranty are the three recognized mortgage insurers. CMHC only insures a house under a high ratio mortgage with a maximum house value at 1 million dollars. If you are looking to buy a house and curious how much down payment you must have in your bank account, you are at the right spot to gain knowledge about it. The down payment depends on the purchase price of the house.
• $500,000 or less- minimum 5% down payment
• $500,000-$999,999- 5% of the first $500,000 and 10% of the remaining amount
• $1,000,000 or more- minimum 20% down payment.

What is PST on Default insurance?
PST stands for Provincial Sales Tax, and you are liable to pay upfront if you are buying your home with less than a 20% down payment. It is included in closing costs such as appraisal fee, inspection fee, land transfer tax etc. Ontario requires you to pay Provincial Sales Tax on CMHC insurance, and it is 8% of the CMHC insurance. For example, your CMHC premium is $8000, and PST is 8% in Ontario; you require to pay $8000*8%=$640. Based on this example, you would pay a total of $640 on your closing. For more information regarding closing costs, you can contact MB Mortgages.

Do I have to pay default insurance twice?
No, you are not subject to pay default insurance twice. As you have the option of renewing your mortgage with your current lender or switching to a new one when it comes up for renewal. You must inform your new lender that you already have paid for insurance on your existing mortgage to avoid paying CMHC fees twice when you renew your mortgage.

How much does CMHC cost ?
In Ontario, the CMHC insurance law and premium rates are the same as they are across Canada. The cost of insurance premiums will range from 1.80% to 4.00% of your mortgage balance. For instance, your mortgage amount is $400,000, and the cost of insurance premium is 3% of $400,000; based on this example, you are subject to pay ($400,000*3%=$12,000) and $12,000 would be added into your mortgage amount.

How can I calculate mortgage affordability?
It is crucial to stick with budget to maintain a balance between income and expenses. You can use our mortgage affordability calculator to get an idea, how much monthly payment+property taxes+heating cost+more would be. It would provide you an estimate, and you will not come up with any surprises in the future.
To sum up, if you are looking to buy a house with less than a 20% down payment, you are liable to pay for default insurance. The Provincial Sales Tax on this insurance premium must pay upfront, and it is included in closing costs. If you have any further questions, please contact MB Mortgages today and get all the answers.

Why choose us-
As a leading Mortgage Brokerage, we have strong relations with multiple banks and numerous lenders. We work with Canada’s leading lenders to provide you a mortgage solution that fits your budget. Our mortgage and financing process is amazingly simple, we represent you and match you with the best suited mortgage as per your needs. This way we can guide you through this complicated process with our years of mortgage financing experience.
• We are dedicated and professional Accredited Mortgage Brokers in GTA.
• We are well trained and have experience in the mortgage financing field more than 10 years.
• We can shop around with different lenders to get you the best possible mortgage rates and conditions as well.
• We have different options for different income and credit level with access to number of private lenders to suit borrower’s needs.

Contact us-
We are a professional mortgage broker in GTA. We can help you secure a mortgage with best mortgage interest rates. We are located at 2896 Slough Street, Unit # 6, and Mississauga, ON L4T 1G3. Call MB Mortgages Inc. today at 905-458-6929/416-939-7131 for your queries or you can email us at: info@mbmortgages.ca or you can visit our website at www.mbmortgages.ca

The information provided in this blog post is intended to provide general information. You should consult with a mortgage professional to fully determine the scope of your situation. MB Mortgages shall not be held liable from usage of the information provided on this page. Individual situation may vary.