I am going to go over an example of buying or refinancing a home with 20% or more in equity.
Buying / Refinancing a home with 20% or more down payment allows you to choose several more options than if you did a lesser down payment.
Here are the main differences:
- Lenders will allow you to choose a longer amortization up to 30 years with most lenders and a couple lenders even still have 35 year amortizations. An amortization is how long the mortgage would take you to pay off if you made regular payments for the allotted time frame with no extra payments.
- HELOC or Home Equity Line of Credit’s are allowed to be up to 65% of the value of a home. The rate for these are generally Prime + 0.5% with most lenders.
- At the time of this blog post, Prime is 2.7%, so lenders are at 3.2% for lines of credit attached to your home currently. Prime could go up though although you would keep the constant of the + 0.5%.
- HELOC’s are an interest only payment. For example if you had a $100,000 HELOC and it was full, the payment would be $3200 a year divided into 12 monthly payments.
- NO CMHC / Genworth or Canada Guarantee Premium
- When you put less than 20% down payment on a home you will normally have to pay an insurance premium. Most people know this as the CMHC premium. This goes on top of your mortgage and is paid along with your regular mortgage payment.
- When you put 20% or more down you do not have to pay this premium.
- Multiple Mortgage Products
- Some lenders will allow you to put between 2-5 different mortgage products on one home. For example, you could have 50% of the value of the home be a HELOC, 20% be a fixed type mortgage and the remaining 10% be a variable type mortgage. Most lenders max out at two mortgage products but certain lenders will allow more.
Those are the main advantages to putting down 20% or more on purchasing or refinancing a home.
I hope this helps and feel free to contact me anytime with questions.