Buying a house costs a lot of money and trying to find ways to save some is always a good thing! Mortgage insurance is something that most home buyers will need BUT what most people aren’t aware of is how much premiums cost you! It is something that usually gets brushed under the rug because mortgage insurance is typically added to your mortgage and you pay it off bit by bit monthly, but the price is high. So how can you save on paying those hefty mortgage insurance fees? The answer lies heavily on what your down payment is.
You pay a higher premium the lower your down payment is. For instance, the standard mortgage insurance premium with a 5% down payment is 2.75% of the mortgage. That number drops drastically to 2% when you have 10% as a down payment. On a $400,000 mortgage you could save $3000 by bumping up your down payment to 10%……. doesn’t seem like much up front, but you are paying interest on that premium for 25 years.
Also take into account that the additional 5% down would be only $20,000 in equity. You are essentially paying $3000 JUST on that $20,000 alone and that means you are being charges 15% interest for that money. So how can you find ways to bump up your down payment so you don’t get pegged with higher mortgage insurance fees? I have come up with a few ideas below,
Consider cashing out your RRSP’s. You are allowed to withdraw and not get penalized for your home purchase as long as you replenish the account within the specified time frame. You are likely not making even close to what you are saving by bumping up your down payment. If you have some money set aside because you wanted to do renovations right away, maybe put them on the back burner for a year or two. If you have 7%-8% be a little more patient and wait until you have a full 10%
Last, and for sure last:) ask your parents or family members for a personal loan at a reasonable interest rate
Aside from saving on the mortgage insurance premium, you may be able to negotiate a better mortgage rate with the bank…… simply put, the higher your down payment, the less of a liability you are to them:) I have attached a link to the CMHC website with the full details of mortgage insurance premiums. Hopefully this information helps and if you have any questions related to mortgage insurance you can contact me directly.
http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Quick-Reference.pdf