A mortgage is a big decision. It shouldn’t be a mystery.
Start with the essentials: what you put down, how you qualify, what insurance does, and how different mortgages work.
How much down payment do you need?
For an eligible owner-occupied home, the general minimum depends on the purchase price:
$500,000 or less: 5% of the purchase price.
Above $500,000 and below $1.5 million: 5% on the first $500,000, plus 10% on the amount above $500,000.
$1.5 million or more: at least 20% of the purchase price.
These are general minimums, not a commitment from a lender. Credit, income, property type, occupancy, down payment source and lender rules can require a larger amount. Closing costs are additional.
A deposit is not an extra down payment. The deposit submitted under your purchase agreement generally forms part of your down payment at closing. Its timing and amount are negotiated; make sure those funds are accessible.
Mortgage default insurance: who does it protect?
Mortgage default insurance protects the lender if a borrower defaults. It does not protect your income, pay off your mortgage for your family or replace home insurance.
It is generally required when a down payment is below 20%, subject to eligible purchase-price and lending rules. CMHC is one insurer; others also provide mortgage default insurance. Eligibility is not automatic.
The borrower pays a premium, which may be added to the mortgage. In Ontario, applicable sales tax on the premium must generally be paid at closing rather than added to the loan. Ask for a breakdown of the premium and cash required.
A lender generally assesses whether you can afford payments using a qualifying rate above the mortgage rate you will actually pay. Think of it as checking your budget against a tougher payment scenario.
The qualifying rate follows applicable regulatory and lender rules. Your income, debts and housing costs are assessed together. Some exceptions apply, including certain renewal switches; confirm which rules apply to your transaction.
Passing a lender’s test does not mean the payment will feel comfortable for your household. Consider childcare, transportation, savings and other expenses that a qualification formula may not fully reflect.
Your interest rate is set for the term. Payments are generally predictable during that term, but renewal can bring a different rate. Breaking the mortgage early can involve a significant penalty; ask how it is calculated.
A variable-rate mortgage
Your rate can move with the lender’s prime rate. Some products have payments that change; others keep payments fixed while the split between principal and interest changes. Trigger-rate or trigger-point provisions may require adjustments. Understand the specific product, not just the label.
Compare prepayment privileges, penalties, portability, term length and your tolerance for payment changes. Neither option is always better for every buyer.
The term is how long your current mortgage agreement lasts. Amortization is the estimated time to repay the mortgage through scheduled payments. A longer amortization generally lowers payments but increases total interest, all else equal. Eligible lengths depend on the mortgage and applicable rules.
This is general education, not a mortgage offer. Rules can change. Confirm current eligibility, costs and terms with your mortgage professional and lender before committing.
Your first home starts with a conversation.
Bring your questions. We’ll start with where you are, not where you think you should be.