Sutton Select BLOG

MAKING A DOWN PAYMENT

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The down payment is so critical in the real estate transaction. Your down payment is the number which dictates what your price range will be when looking for your new home. Before I go any further, if you only take one thing out of this post. Remember this: “The greater the down payment, the greater the savings”.

By putting more money down upfront, you reduce your mortgage timeline, as well as interest and insurance expenses. With that being said, the minimum down payment required by law in Canada is 5%. Please recognize that this is the “minimum”, not the desired amount. Ideally you should attempt to make a down payment of at least 10%, and be aiming for 20%. If you develop a plan that incorporates down payments at these levels, it ensures that you are looking at homes that are most suitable to your income. No one likes to, or should seek to be in debt. Five percent down payments can quickly put you in a dreaded financial position that you cannot escape.

Therefore I suggest that you thoroughly evaluate your current situation.  Ask yourself questions such as:

  • What are my current income levels? Are they stable?
  • Will I be able to cover the reoccurring mortgage expenses?
  • What is the volatility of my job/career?
  • What other debts do I currently owe?
  • How much will I be paying just on interest?
  • How many years until the loan will be paid off?

I think one of the biggest reason our economy is in the situation we are currently in is because so many of us live with the mentality “What is the minimum I need to buy this home?”, instead of “Based on my savings, what type of home can I purchase assuming my savings will cover 20%? ”

Here is a chart of sample situations based on the price of a home and the down payment made:

Property Value

5%

10%

20%

50%

$100,000 $5,000 $10,000 $20,000 $50,000
$150,000 $7,500 $15,000 $30,000 $75,000
$200,000 $10,000 $20,000 $40,000 $100,000
$250,000 $12,500 $25,000 $50,000 $125,000
$300,000 $15,000 $30,000 $60,000 $150,000

These are just basic numbers, but it will quickly put into perspective the different costs. I want to reiterate that nothing is wrong with the 5% down payment, just make sure you will have the financial capabilities to take on the long term mortgage. Personally,  I suggest aiming for the greatest down payment you can afford, and then making lump-sum payments towards your mortgage annually. This will fast-track your mortgages making the home all yours that much faster.

If you have any questions or would like to have a REALTOR© contact you please fill out the form here. We will do our best to respond to you as quickly and efficiently as possible.


Writer Bio : Growing up in a real estate environment and with a marketing major, Alex has a unique skill set that he applies to the development and implementation of marketing strategies to propel Sutton-Select ahead of the competition.

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