February Mortgage Update - The Dollar Difference
In the intricate world of mortgages, where numbers can significantly impact the financial landscape, did you know that the difference between a purchase price of $999,999 and $1,000,000 could be a game-changer? In this blog post, we'll explore a few ways in which this seemingly marginal distinction can have a substantial impact on down payments, interest rates, and the likelihood of requiring an appraisal.
Minimum Down Payment Changes:
One of the key differentiators lies in the minimum down payment required. Homes priced under a million dollars qualify for purchase with insurance from entities like CMHC, Sagen, or Canada Guarantee. However, once the price breaches the million-dollar mark, this insurance option disappears, altering the down payment requirements significantly.
For a purchase price of $999,999, the minimum down payment is $75,000. In contrast, for a property valued at $1,000,000, the minimum down payment jumps to $200,000. This considerable difference can have substantial implications for potential homebuyers.
Impact on Mortgage Rates:
The price tag of a property also affects the mortgage rates you can secure. Insured mortgages, particularly those backed by CMHC, generally offer the best rates for clients putting down less than 20%. Surprisingly, even if you are putting down 20% or more, opting for a property below the million-dollar threshold might still result in a more favourable rate.
The rationale behind this lies in the ability of lenders/banks to purchase bulk insurance for these mortgages at their own expense. This insurance leads to some cost savings, which are often passed on to the client. Hence, lenders favor these files, offering better rates for properties under $1,000,000.
Appraisal Probability:
The purchase price also affects the likelihood of requiring an appraisal for the property. Whether the file is insured (with you paying CMHC) or insurable (with the bank/lender covering CMHC), there is a higher chance that the property passes the algorithm, negating the need for an additional appraisal.
First-time buyers may have noticed that they often escape the need for an appraisal. The internal appraisal conducted by the insurer tends to be more forgiving, reducing the chances of additional hurdles in the homebuying process.
While discussing rates isn't a common practice, it's worth noting that there are currently some exceptional deals available. With a 4.84% 5-year fixed rate well below the market average, and strong offerings for variable and 3-year terms, there might be opportunities for those in the market. If you have a pre-approval or have recently purchased, consider reaching out to a mortgage broker for a discussion about these enticing mortgage options.
In the dynamic landscape of real estate and mortgages, seemingly insignificant differences, such as the distinction between a $999,999 and $1,000,000 property, can have profound implications. From down payments to interest rates and the need for appraisals, understanding these nuances is crucial for both prospective homebuyers and mortgage professionals navigating the complex world of real estate financing.
Credits and thank you to Jim Steffler for this information. If you’re looking for a great mortgage agent, consider reaching out to Jim!
Jim Steffler
Mortgage Agent Level 2
Dominion Lending Centres National Ltd.
TEL: 226-338-5136
EMAIL: jim@jimstefflermortgages.com
https://jimstefflermortgages.com