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Down Payment
Canada's National
Housing Act prohibits lenders from loaning the entire amount of a home's
market value, so you will need a cash down payment to cover part of the
purchase price. The Act states that a lender cannot normally
provide more than 75% of a homes value unless the mortgage is insured by
the Canada Mortgage and Housing Corporation (CMHC) or a private
insurance company. If you qualify for mortgage loan insurance you
can borrow up to 95% of a home's value. This is called a
"high-ratio" mortgage because of the high proportion of borrowed funds
versus the cash you bring to the table.
The amount and cost of a mortgage is strongly affected by how much of
a down payment you make. The bigger the down payment, the smaller
the loan you will need and the less you will pay in interest over the
term. It makes sense to put down as much as you can afford, but
keep in mind there are other costs involved in buying a home. It
is a good idea to have some cash in reserve.
You may be surprised to learn that the cost of moving-up is within
your means. The equity you have already built up in your current
home can often handle the down payment for your next home.
Moving-up to a new home can intensify the joys of home ownership.
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