Can you put 20 per cent down on a home? If so, you are rare in Canada's housing market where, despite the urgings of the federal Finance Minister, few buyers have that kind of cash.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) reports only 39 per cent of home buyers between 2010 and the spring of 2012 had 20 per cent down or more. The survey included both first-time and repeat buyers.
First-time buyers accounted for 56 per cent of those polled.
The survey found that 41 per cent of buyers had less than a 10 per cent down payment, 21 per cent had more than 10 per cent but less than 20 per cent down
This means that about 60 per cent of buyers needed to purchase mortgage insurance.
Mortgage insurance protects the lender in case the borrower defaults on the mortgage payments.
If an insured mortgage is in default, and the lender can't collect from the borrower, the insurer pays the lender back.
Mortgage default insurance is required by most lenders whenever a homeowner puts down less than 20 per cent. The biggest mortgage insurers in Canada are Canada Mortgage and Housing Corporation, Gen-worth Financial, and Canada Guaranty - in that order.
Mortgage insurers charge premiums to borrowers to cover the insurance expense.
These fees can range from less than one per cent to more than five per cent of the principal value, depending on the borrower's mortgage type, loan-to-value, property type, and amortization.
The insurance premiums are typically added to the mortgage at the time of closing. They can be paid in advance, but rarely are.
Putting down 10 per cent on the [Canadian] average $350,152 home, for example, means the buyer will pay a $6,302 insurance premium (given fully documented income and decent credit).
Since insurance premiums are tacked on to the mortgage, that adds up to $9,000 or more if the mortgage loan is amortized over 25 years.
Anyone who requires mortgage insurance is also subject to new borrowing rules that came in this summer.
In the Lower Mainland, both the Greater Vancouver and the Fraser Valley real estate boards are saying the new rules are already hurting sales.
In another few months, we'll get a good sense of how these recent borrowing restrictions in the mortgage market will affect buyers and mortgage volumes, despite mortgage rates remaining near historic lows.
REW.ca is a real estate search website for Vancouver and the Lower Mainland.
