a home will likely be one of the largest financial transactions of your
life. We have included some information below to assist you with the basics
of mortgages and financing.
Mortgage (25% down)
A conventional mortgage is
one that is offered on new and existing homes, for up to 75% of the purchase
price. The home buyer must have at least 25% of the purchase price available
for a down payment. Conventional mortgages do not have to be insured through
the Canadian Mortgage and Housing Corporation (CMHC).
High Ratio Mortgage
One of the more popular programs
available from CMHC is the "5%" program, or high-ratio mortgage. Insured
through CMHC, the mortgage is guaranteed for home buyers who need a high
ratio mortgage (up to 24.9%). The insurance premium that is paid to CMHC
is to protect the lender in the event that the mortgage is not paid. This
program is not the same as life, disability or job loss insurance. The
principal benefit to the borrower, is that it allows you to purchase a
home with a minimum down payment. This program is often used by first-time
buyers who could not afford a conventional 25% downpayment.
The 5% downpayment on a $125,000
house or condo, for example, is just $6,250.
An application must be submitted
on your behalf to CMHC with a $235 application fee (plus applicable taxes).
Upon receipt of the application, CMHC undertakes to determine the lending
value of the property, which may or may not include an actual inspection
or appraisal of the property.
CMHC also requires that the
home-related expenses (Gross Debt Service or GDS ) must not exceed 32%
of your gross household income, and that your total monthly debt load
(Total Debt Service or TDS) must not exceed 40% of your gross monthly household
income. You must also be able to pay closing costs equivalent to 1.5% of
the purchase price.
To calculate the total debt
service (TDS), use the formula below:
|Gross Monthly Income
In some instances, it may
be necessary to insure a mortgage, even though it is not considered high
ratio. This is also reflected in the chart below.
|Loan to Value Ratio
|1.00 to 65%
||0.50% of mortgage
|65.1 to 75%
||0.65% of mortgage
|75.1 to 80%
||1.00% of mortgage
|80.1 to 85%
||1.75% of mortgage
|85.1 to 90%
||2.00% of mortgage
|90.1 to 95%
||3.25% of mortgage
The CMHC insurance premium
may be paid in full on closing or added to the mortgage amount. If added
to the mortgage amount, interest is then paid on the insurance premium
over the amortization of the mortgage. Most people opt for paying over
the period of the mortgage rather than being saddled with a lump sum on
Using the CMHC program,
the maximum purchase price with a downpayment of under 10% is $250,000.
If you decide to put down more than 10%, there is no maximum purchase price
set by CMHC, but some of the financial institutions may impose sliding
scales of their own.