The size of a down payment can vary. Depending on the type of mortgage, down payments generally range from 5% to 25% of the purchase price.
Probably the most difficult challenge facing new homeowners is to save enough for a
down payment. The more money you can put down, the more money you
will save in the long run through lower interest costs. In order to obtain a conventional
mortgage, homeowners are required to put down at least 25% of the purchase
price or appraised value (whichever is less) as a down payment. However, this usually
means a lot of planning, budgeting and saving.
Programs are in place to assist people with the challenge of saving for a
down payment. One program is the high ratio mortgage, whereby new homeowners
can put as little as 5% down toward the purchase of a home. The mortgage is insured against default, and the borrower pays the premium (in this case 3.75%). Usually,
the premium is added to the mortgage amount, which also means more interest to pay
over the term of the mortgage.
Tip: Try to save at least 10% as a down payment. The insurance premium is 2.5% as
opposed to 3.75%. Although this might mean delaying your home purchase for a while,
it could ultimately save you thousands of dollars in interest costs.
The other program that is available to help you save for your down payment is the
RSP Home Buyer's Plan. This plan allows you to use your RSP savings as a down
payment toward your home without tax penalty. The maximum amount you can use is
$20,000 per purchaser and the amount has to be repaid into your RSP within 15 years.
TD Canada Trust Mortgage Navigator and Mortgage Calculator
help you determine the best mortgage for you and help you calculate the optimum size of your down payment.
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