Mortgage down payments aren’t a one-size-fits-all

Written by: Vivek Jacob
October 3, 2021
Mortgage down payments aren’t a one-size-fits-all

Mortgage interest rates are all the way down. Property prices on the other hand, are through the roof. Are you truly in position to buy a home?

The question of how much to put down as a down payment is a subjective one and is one of the biggest factors to consider in deciding whether or not you are ready to take on a mortgage. Some will argue that you should only put down the minimum required with interest rates so low. Others will argue you should always put down at least 20 percent to avoid paying CMHC (Canada Mortgage and Housing Corporation) insurance. It’s not a one-size-fits-all and here are the reasons why:

HOW MUCH HAVE YOU REALLY SAVED UP?

Emergency savings, vacation savings, other investments. When it comes to making a down payment, it can be very easy to look at the behemoth of a mortgage ahead of you and pool all those funds together to put together a down payment. Be careful, though. Putting away a vacation for a little while is one thing, having no emergency funds to deal with unforeseen circumstances can be a disaster.

Yes, it’d be nice to max out that down payment but especially with current interest rates it’s really important to make sure you have some room for flexibility and – in financial speak – liquidity, when it comes to managing your money while making mortgage payments.

WHAT ARE YOUR CIRCUMSTANCES?

Being honest with yourself about your job circumstances is probably the most important factor outside of how much you’ve actually saved up for a down payment. Ask yourself, how volatile is your industry? Have you been laid off before? If your reality is such that it could happen again, these are all things worthy of keeping in mind when making a down payment. If you have substantial enough savings, maybe even going beyond the 20 percent down payment makes sense because it can reduce that regular mortgage payment amount – something you’ll be thankful for if you ever were to suffer job loss or be unable to work for whatever reason.

Have plenty of job security? Well, then you can view things differently and may be more inclined to have a regular or lower down payment and max out the benefit of current interest rates.

WHAT’S THE PURPOSE OF THE PROPERTY?

Is this your primary residence or a rental property? Rental properties require a 20 percent down payment while depending on the circumstances, a down payment as low as five percent may suffice for a primary residence.

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