Insured Mortgages Vs Conventional
1. Less than 20% down payment is an insured mortgage. Minimum 20% or more down is a conventional or uninsured mortgage.
2.Insured mortgages have a maximum amortization of 25 years.
3. Conventional or uninsured mortgage amortization is more than 25 years such as 30 to 35 years.
Any time the purchase price is above $500,000, the down payment is calculated as 5% on the $500,000. and minimum 10% of the remainder amount on insured mortgages.
When clients put less than 20% down, here’s how the down payment is calculated as it’s an insured mortgage. Insured mortgages are insured with Canada Mortgage and Housing Corporation (CMHC), Genworth or Canada Guaranty.
- EXAMPLE 1: ( price above $500,000.00)
Purchase price: $800,000, down payment of $55,000
5% of $500,000 = $25,000 and 10% on the remainder $300,000 = $30,000 therefore the total down payment required is $55,000 on a purchase price of $800,000.
- EXAMPLE 2: ( price up-to $500,000.00)
Purchase price: $500,000, down-payment: $25000 ( Only 5% is required as the price does not exceed $500,000).
- EXAMPLE 3:
Purchase price: $600,000 , down-payment: $35,000 (5% of $500,000 and 10% of 100,000).
- EXAMPLE 4:
Purchase price: $550,000, down-payment: $30,000 (5% of $500,000 and 10% of 50,000).
NOTE: Lenders want to see an additional 1.5% of the purchase price in your account in addition to the down payment. Even though you may not use it all but they just want to know clients have more than the down payment to cover the closing cost such as legal fees, land transfer tax, maybe inspection etc.
I hope the above is helpful and gives you an idea how the down payment calculation works if you or anyone you know are purchasing a property above $500,000 and have less than 20% down.
CEO, Ameera Ameerullah