How much Downpayment do you need?
One of the really cool things about living and working in a relatively small world is that sometimes you hang out with your Mortgage Advisor friend at your kids’ softball practice. Kimberly and I were sitting in the car waiting to go to an indoor game the other day and we were chatting real estate and mortgages and down payments (and life!). I don’t usually get too involved with her part, but it’s good to have a refresher now that our price points are mostly above the $500,000 mark. When I started in 2009, we were dealing with $250,000 at the highest with new construction maybe a little more. Flash forward to 2022…
We all have heard that a minimum of 5% is what you have to save to buy a property. When you buy a property for $650,000 you would think that you need $650,000 x 5% so $32,500. Um, no. Under $500,000, the down payment that the bank requires for an insured (“high ratio”) mortgage is 5%. BUT if you’re at say $650,000 that isn’t 5% on the whole thing. It’s 5% of $500,000 and 10% on the rest above (up to purchases of $1 M where it gets really crazy).
Let’s do the math…
We need the 5% on the first $500,000 ($25,000) and now add 10% of the $150,000 balance ($15,000) for a total of $40,000. NOT $32,500.
When you get to the million dollar mark, the downpayment is 20% for the portion up to the $1M, so $200,000 there. Add 50-80% of the amount over depending on the area you’re buying in. So for a $1,200,000 purchase you need the $200,000, then for the additional $200,000 over, between $100,000 and $160,000. So potentially $360,000 but honestly, can you imagine a mortgage of almost $1M?! Hopefully you have a LOT more down…
What you also need to provide is proof of closing costs (roughly 1.5%) so let’s go back to the $650,000 example, You’ll need to have $9,750 sitting waiting (or in RRSP’s or gifted). AND don’t confuse the down payment with the deposit which goes with the offer, usually around $10,000.
Clear as mud? Talk to a Mortgage Professional like my friend Kimberly… then come back to us and we’ll help you shop ;)