Downpayment Options

Sabeena Bubber • February 14, 2024

Your downpayment refers to the initial payment you make when buying a property through mortgage financing. A downpayment is always required when purchasing, because in Canada, lenders are only allowed to lend up to 95% of the property value, leaving you with the need to come up with at least 5% for a downpayment.

In fact, securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. Canada has three default insurance providers: the Canadian Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty. There is a cost for default insurance which is usually rolled into the total mortgage amount and is tiered depending on how much you put down.

As your downpayment can be a significant amount of money, you probably need a plan to put this money together. So, let’s take a look at some of the options you have to come up with a downpayment.

Money from your resources

If you’ve been saving money and have accumulated the funds and set them aside for to use for your downpayment, you'll need to prove a 90-day history of those funds. As far as the lender is concerned, this is the most straightforward way to prove a downpayment.

Any large deposits to your bank account that aren’t from payroll will require you to prove the source of funds. For example, if you recently sold a vehicle, you’ll need to provide the paperwork as proof of ownership, which corresponds to your account’s deposit. Or, if you have funds in an investment account that you’ve transferred over, statements of that transfer or account would suffice.

You have to prove the source of your downpayment funds to the lender when qualifying for a mortgage to help prevent money laundering.

Funds from the sale of another property

If you’ve recently sold a property and you’re using the proceeds of that sale as the downpayment from your new purchase, you can provide the paperwork from that transaction to substantiate your downpayment.

RRSPs through the Home Buyer’s Plan

Okay, so let’s say you don’t have all the money set aside in your savings, but you do have cash in your RRSP. Assuming you’re a first-time homebuyer, you can access the funds from your RRSP Tax-Free to use as a downpayment.

You’re able to access up to $35k individually or $70k as a couple. The money has to be paid back over the next 15 years. If you’d like more information on what this program looks like, please get in touch.

Gifted downpayment

Now, if you don’t have enough money in your savings, but you have a family member who is willing to help, they can gift you funds for your downpayment. With the increased cost of living, making it harder to save for a downpayment, receiving a gift from a family member is becoming increasingly commonplace.

Now, to qualify, the gift has to come from an immediate family member who will sign a gift letter indicating there is no schedule of repayment and that the gift doesn’t have to be repaid. Proof that the money has been deposited into your account is required through bank statements.

Gifted funds can make up part of or the entire amount of downpayment. For example, if you purchase a property for $300k and have $10k saved up, your parents can gift you the remaining $5k to make up the total 5% downpayment.

Borrowed downpayment

Suppose you aren’t fortunate enough to have a family member who can gift you a downpayment, but you have excellent credit and a high income compared to the amount you’re looking to borrow. In that case, you might qualify to borrow part or all of your downpayment.

It’s possible to borrow your downpayment as long as you include the payments in your debt service ratios. Typically this is 3% of the outstanding balance.

So there you have it, to qualify for a mortgage, you’ll need to come up with a downpayment. That can be through your resources, a property you sold, an RRSP, a gift from a family member, borrowed funds, or a combination of all five sources.

If you’d like to discuss your downpayment or anything else related to mortgage financing; it’s never too early to start the conversation about getting pre-approved for a mortgage. Please connect anytime. It would be a pleasure to work with you!

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Finance Your Home Renovations

By Sabeena Bubber • February 19, 2025

If you’re looking to do some home renovations but don’t have all the cash up front to pay for materials and contractors, here are a few ways to use mortgage financing to bring everything together. Existing Home Owners - Mortgage Refinance Probably the most straightforward solution, if you’re an existing homeowner, would be to access home equity through a mortgage refinance. Depending on the terms of your existing mortgage, a mid-term mortgage refinance might make good financial sense; there’s even a chance of lowering your overall cost of borrowing while adding the cost of the renovations to your mortgage. As your financial situation is unique, it never hurts to have the conversation, run the numbers, and look at your options. Let’s talk! If you're not in a huge rush, it might be worth waiting until your existing term is up for renewal. This is a great time to refinance as you won’t incur a penalty to break your existing mortgage. Now, regardless of when you refinance, mid-term or at renewal, you’re able to access up to 80% of the appraised value of your home, assuming you qualify for the increased mortgage amount. Home Equity Line of Credit Instead of talking with a bank about an unsecured line of credit, if you have significant home equity, a home equity line of credit (HELOC) could be a better option for you. An unsecured line of credit usually comes with a pretty high rate. In contrast, a HELOC uses your home as collateral, allowing the lender to give you considerably more favourable terms. There are several different ways to use a HELOC, so if you’d like to talk more about what this could look like for you, connect anytime! Buying a Property - Purchase Plus Improvements If you’re looking to purchase a property that could use some work, some lenders will allow you to add extra money to your mortgage to cover the cost of renovations. This is called a purchase plus improvements. The key thing to keep in mind is that the renovations must increase the value of the property. There is a process to follow and a lot of details to go over, but we can do this together. So if you’d like to discuss using your mortgage to cover the cost of renovating your home, please connect anytime!

Fixed-Rate or Variable-Rate Mortgage?

By Sabeena Bubber • February 12, 2025

If you're looking to buy a new property, refinance, or renew an existing mortgage, chances are, you're considering either a fixed or variable rate mortgage. Figuring out which one is the best is entirely up to you! So here's some information to help you along the way. Firstly, let's talk about the fixed-rate mortgage as this is most common and most heavily endorsed by the banks. With a fixed-rate mortgage, your interest rate is "fixed" for a certain term, anywhere from 6 months to 10 years, with the typical term being five years. If market rates fluctuate anytime after you sign on the dotted line, your mortgage rate won't change. You're a rock; your rate is set in stone. Typically a fixed-rate mortgage has a higher rate than a variable. Alternatively, a variable rate is not set in stone; instead, it fluctuates with the market. The variable rate is a component (either plus or minus) to the prime rate. So if the prime rate (set by the government and banks) is 2.45% and the current variable rate is Prime minus .45%, your effective rate would be 2%. If three months after you sign your mortgage documents, the prime rate goes up by .25%, your rate would then move to 2.25%. Typically, variable rates come with a five-year term, although some lenders allow you to go with a shorter term. At first glance, the fixed-rate mortgage seems to be the safe bet, while the variable-rate mortgage appears to be the wild card. However, this might not be the case. Here's the problem, what this doesn't account for is the fact that a fixed-rate mortgage and a variable-rate mortgage have two very different ways of calculating the penalty should you need to break your mortgage. If you decide to break your variable rate mortgage, regardless of how much you have left on your term, you will end up owing three months interest, which works out to roughly two to two and a half payments. Easy to calculate and not that bad. With a fixed-rate mortgage, you will pay the greater of either three months interest or what is called an interest rate differential (IRD) penalty. As every lender calculates their IRD penalty differently, and that calculation is based on market fluctuations, the contract rate at the time you signed your mortgage, the discount they provided you at that time, and the remaining time left on your term, there is no way to guess what that penalty will be. However, with that said, if you end up paying an IRD, it won't be pleasant. If you've ever heard horror stories of banks charging outrageous penalties to break a mortgage, this is an interest rate differential. It's not uncommon to see penalties of 10x the amount for a fixed-rate mortgage compared to a variable-rate mortgage or up to 4.5% of the outstanding mortgage balance. So here's a simple comparison. A fixed-rate mortgage has a higher initial payment than a variable-rate mortgage but remains stable throughout your term. The penalty for breaking a fixed-rate mortgage is unpredictable and can be upwards of 4.5% of the outstanding mortgage balance. A variable-rate mortgage has a lower initial payment than a fixed-rate mortgage but fluctuates with prime throughout your term. The penalty for breaking a variable-rate mortgage is predictable at 3 months interest which equals roughly two and a half payments. The goal of any mortgage should be to pay the least amount of money back to the lender. This is called lowering your overall cost of borrowing. While a fixed-rate mortgage provides you with a more stable payment, the variable rate does a better job of accommodating when "life happens." If you’ve got questions, connect anytime. It would be a pleasure to work through the options together.

Mortgage Advice to Help You Through a Separation

By Sabeena Bubber • February 5, 2025

With the latest stats claiming that about half of marriages end in divorce and with around three-quarters of Canadians being homeowners, it’s important to know how to handle your mortgage if you decide to separate. Here’s a quick list of things to consider. Keep making your payments. A mortgage is a legally binding contract between you and the lender. It doesn’t take marriage into account. If your name appears on the mortgage, you're responsible for making sure the regular payments are made. A marital breakdown does not give you an excuse not to make your mortgage payments. If, during your marriage, you've relied on your spouse to make the mortgage payments and you aren’t certain payments are being made after separating, it's in your best interest to contact the lender directly to verify your mortgage is being paid. If payments aren't being made, it could affect your credit score or worse; the lender could start foreclosure proceedings. There is always a financial cost to break your mortgage. When working through how to split your finances, you decided to either refinance your mortgage, remove someone from the title, or sell the property, keep in mind that you will incur legal costs. If you’re in the middle of a term, the penalty for breaking your mortgage might be significant, especially if you have a fixed-rate mortgage. It’s certainly worth contacting your mortgage lender directly to verify the cost of breaking your mortgage. Having that information accessible when writing out your separation agreement will provide increased clarity. Listing your marital status as separated or divorced. When completing a mortgage application for securing new mortgage financing, when you list your marital status as separated or divorced, you can expect that a lender will want to see your legal separation agreement or your divorce papers. The lender wants to make sure you aren’t responsible for support payments. So if you haven’t finalized the paperwork, expect delays in securing mortgage financing. It could be harder to qualify for a new mortgage. With the separation of assets also comes the separation of incomes. If you qualified for your existing mortgage on a double income, you might find it hard to maintain the same quality of lifestyle post-separation. This is where careful planning comes in. Working closely with your independent mortgage professional will ensure you understand exactly where you stand. You’ll want to put together a plan for how to handle the mortgage on the matrimonial home. Purchasing the matrimonial home from your ex. There are special considerations given to people going through a separation to buy out the matrimonial home. Instead of looking at the transaction like a refinance where you can only borrow up to 80% of the property’s value, lenders will consider one spouse buying out the other up to a 95% loan to value ratio. This comes in handy when dividing assets and liabilities. Navigating the ins and outs of mortgage financing isn’t something you have to do alone. If you're going through a separation and you’d like to discuss all your mortgage options, please connect anytime. It would be a pleasure to walk you through the process.