Hello and welcome back to our blog. Today, we're diving into the world of mortgages. Have you been house hunting and found yourself debating whether to save a 20% down payment or take advantage of an insured mortgage product? If so, this post is for you. We'll examine the offerings of insurance companies like the Canada Mortgage and Housing Corporation (CMHC), Sagen, or Canada Guarantee. Let's get into it!
To begin with, it's crucial to understand what exactly we mean by conventional and insured mortgages. A conventional mortgage is one where you're putting down at least 20% of the purchase price of the house. In contrast, with an insured mortgage, you're putting down less than 20%, sometimes as little as 5%. Companies like CMHC, Sagen, or Canada Guarantee step in to protect the lender in case of any default by guaranteeing the home's value.
Now, you might be asking how this impacts the rates. It's a bit counterintuitive, but if you're putting down a larger payment, your interest rate might be higher. This situation arose due to government changes a few years back, which made lending more expensive for banks when they're not using an insured product. As a result, that cost is passed onto the consumer.
There are pros and cons to both types of mortgages. When you opt for a conventional mortgage, you'll have more equity in your home right off the bat, and your borrowing costs are likely to be lower. Plus, you'll have more flexibility when it comes to qualification. However, the downside to a conventional mortgage is the higher initial out-of-pocket cost.
On the other hand, with an insured mortgage like those offered by CMHC, the down payment is lower, making it easier for potential homeowners to enter the market. The interest rate is generally lower too, and you get to join the housing market sooner, which allows you to start building equity quickly. The downside is the high premiums and strict guidelines that these insured mortgages follow.
If you have the means to make a 20% down payment, it's usually best to do so. But if you're looking to enter the housing market and can only afford a 5% down payment, there's no need to wait. The value of houses continues to rise, and waiting for the perfect moment could mean being priced out of your desired market.
Remember, the best time to buy a house is when you're ready. If you have more questions or need help building a budget, don't hesitate to reach out to us. Our team and preferred partners are ready to give you the local competitive advantage in today's real estate market. We look forward to chatting with you!