I have bought 4 properties since I have been in Canada. Every time I have given over 20%. As an entrepreneur, I had no other choice. Banks don’t like self-employed people. If you don’t have a regular paycheck from XYZ company they don’t want to talk to you.

You must pay mortgage insurance if you are giving less than 20% down payment

But now, regulations in Canada (The Canadian Bank Act) have made it so that everyone is encouraged to put down at least a 20% down payment on the purchase of their next property.

The Canadian government is worried that we could have a housing crisis like the one in the U.S. In order to prevent such a scenario they are requiring everyone who wants to buy a house with less than 20% down payment to pay for mortgage insurance.

Insurance is generally provided by the Canada Mortgage and Housing Corp, which is backed by the federal government.

The minimum possible down payment allowed in Canada is 5%.

Anyone getting a mortgage with a down payment between 5% and 20% has to get mortgage insurance. There is no way around it.

The mortgage insurance is charged to the lender, but the lender turns around and charges it to the borrower.

The reason for this insurance is to protect the lender from default. But also to encourage the prospective homeowner to have some more skin in the game.

In the U.S. many borrowers just walked away from their mortgages, creating a real estate fiasco. In Canada, due to our stricter housing regulations, we didn’t have a real estate crisis like in the U.S., but with soaring housing prices in Vancouver and Toronto, the government wants to take every precaution necessary.

It is my opinion that if a borrower doesn’t have a 20% down payment, that borrower has no business buying a property anyway. Why not save for a bit longer, or get a more affordable place. Or just be happy as a renter. There is no shame in that.

How much does the mortgage insurance costs?

The cost of mortgage insurance depends on the percentage you are giving as a down payment.

• If your down payment is between 15% and 20% your cost is 2.8% of the value of the house.
• If your down payment is between 10% and 15% your cost is 3.1% of the value of the house.
• If your down payment is between 10% and 15% your cost is 4.0% of the value of the house.
• If your down payment is between 5% and 10% your cost is 4.5% of the value of the house.

mortgage Insurance vs. Mortgage Life Insurance

Beware. mortgage Insurance and Mortgage Life Insurance are not the same things.

Mortgage life insurance is life insurance that will pay the mortgage if you die. You are not obliged to get it.

The bank (lender) will present it to you without even asking (it happened to me). And their language will make you believe that it is a necessity. If you tell them you don’t want it, they will make you sign and initial several papers stating that you have refused to buy Mortgage Life Insurance. All these are fancy selling techniques. You are better off increasing the size of your life insurance if this is a concern.

Other upfront expenses when buying a house

Ok, you got 20%. You think you are done. But there are many other expenses to consider before taking possession of your new house.

• A home inspection by your own inspector
• A home inspection by the lender (property valuation fee)
• Land transfer tax (Provincial and Municipal)
• Legal fees
• Sales tax (if it is a new property)
• Title insurance
• Home insurance

Altogether you may guesstimate an additional 2.0% of the value of the home.

Conclusion

You should have about 22% of the value of the house to be able to buy yourself some housing.

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3. The banks #1 loyalty is towards its shareholders

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