First-Time Home Buyer Loans
Like most people, you’ll probably need a loan from the bank, also called mortgage to buy your first home. Typically, this loan has to be paid off over a period of several years. Here are some factors you need to be aware of:
Five-year Fixed Rate Mortgages
Mortgages can be of two kinds, the fixed or variable rate mortgages. Most people prefer the Five Year Fixed Rate Mortgage in which you’ll pay a fixed rate of interest for the first five years of taking the loan. Should you opt for the fixed-rate mortgage, you’ll pay a specific rate of interest all through the mortgage term irrespective of the bank’s prime rate. With variable rate mortgages, the interest rate fluctuates according to the bank’s prime rate. Typically, fixed rate interest payments are higher than variable rates.
Down Payment Rules
The down payment is the upfront payment you must make when you buy a home. The combined down payment and mortgage payment make up the total value of the home though the down payment is usually a small percent of the whole amount. For instance, if the value of the property is $100,000 and you pay a 15% down payment, you’ll pay $15,000 upfront and $85,000 as 85% mortgage. Here are some other factors you should know:
- If the value of the home is less than $50,000, the minimum upfront payment needed is 5%.
- If the value of the home ranges from $500,000 to $1 million, you’ll pay a minimum upfront of 5% on the initial $50,000 of the home value. In addition, you’ll pay 10% on the home value from $500,000 to $1 million.
- If the value of the home is more than $1 million, the minimum upfront payment applicable is 20% of the home value.
- The mortgage amount and need for CMHC insurance depend on the percentage of down payment you have made.
As a home buyer in Canada, if you are paying less than 20% of the home value as down payment, you’ll need to buy CMHC insurance also known as mortgage default insurance. This facility is designed to protect the lenders from the possibility that you cannot make the necessary payments. Here is the insurance structure:
- Premium rate of 4.0% of mortgage amount on down payments of 5% to 9.99%
- Premium rate of 3.10% of mortgage amount on down payments of 10% to 14.99%
- Premium rate of 2.80% of mortgage amount on down payments of 15% to 19.99%
- No CMHC applicable on down payments of 20% and above.
- No CMHC applicable on homes with value of $1 million and above