Buying a Home

Buying a home and negotiating a mortgage are among life’s important events. These processes involve a great deal of effort. And for many people, buying a home is their first major financial commitment.

Before you begin the process, whether by looking for a property or shopping around for a mortgage lender, find out what important elements you should consider so that you can be well prepared and confident as you make this transition.

Insuring your loan to reduce your downpayment

As a general rule, when buying a home, you must make a downpayment at least equal to 20% of the home’s purchase price. A conventional mortgage loan cannot exceed 80% of this price.

However, if you cannot afford this, you can obtain a high-ratio mortgage loan by purchasing mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) or GE Mortgage Insurance Canada. The borrower will take care of making the request. This may enable you to obtain a mortgage loan of up to 95% of the purchase price or market value of the property you wish to purchase.

In this case, the minimum downpayment when buying a home is 5% of the lesser of:

• the home’s purchase price; or
• the home’s appraised value.

Who pays the insurance premium to CMHC or GE Mortgage Insurance Canada?
The borrower pays the premium, which is generally added to the loan amount. The premium can reach a maximum of 3.25% of the capital borrowed.

In addition to a down payment of at least 5% of the home’s purchase price, you must also ensure that you have enough money available to cover closing costs. These costs, which can range from 1.5% to 4% of the property’s value, include:

• professional fees:
  • legal fees
  • certificate of location
  • inspection costs

• taxes:
  • tax adjustment (municipal and school taxes)
  • transfer taxes

• and other expenses:
  • home insurance
  • moving
  • repairs and renovations
  • utility hook-up (phone, cable, hydro, etc.)
  • furnishings, appliances, paint, tools, other accessories

Figuring out your closing costs
An easy-to-remember rule of thumb is to set aside from 1.5% to 4% of the home’s value to cover closing costs.

Wondering whether to choose a fixed or variable interest rate? It all depends on your tolerance to risk when it comes to interest rate fluctuations.

A variable rate is generally more advantageous than a five-year rate on any given day. However, the variable rate may vary over time—as its name suggests—whereas the five-year rate stays the same for the entire five-year term. With the variable rate, you benefit immediately from rate decreases, but you may feel the pinch when rates go up.

Mortgage insurance: Protecting you and your family

Insuring your mortgage gives you peace of mind, knowing that should a disability, early death or serious illness occur, you have financial protection to cover your mortgage payments. This way, your home will never become a financial burden to you and your family. That’s why choosing mortgage insurance is a serious matter.

Your mortgage insurance should provide the right coverage to protect your investment against the many events that can jeopardize it. Universal Loan Insurance is our answer to this need.