Everything you need to know about mortgage
Financing can seem like a harsh reality when you're
shopping for your first home. Sure, you're earning a respectable
salary, but that figure seems decidedly paltry when set against
the price tag of a house or condominium. You begin to envy people
in middle age, who have likely owned several homes, been paying
off a mortgage for decades and reaped profits on resale.
But there's no need to despair -- everyone has to
start somewhere. Just because you can't plunk down a hefty down
payment doesn't mean banks and other lenders won't loan you money.
There's an instrument in place that enables you to get a mortgage
even if you can only come up with a small fraction of a conventional
How low can you go? 5 percent
People who put down less than 25 percent of the home's price --
for example, less than $50,000 on a $200,000 property -- must get
mortgage loan insurance through the Canada Mortgage and Housing
Corporation (CMHC) or GE Capital Mortgage Insurance Company (GEMICO).
This insurance is made strictly for high-ratio mortgages (i.e.,
home loans that exceed 75 percent of the property's purchase price).
Its purpose: to protect the bank from mortgage default.
With CMHC or GEMICO insurance in place, you can buy
a home with as little as 5 percent down. In the case of that $200,000
home, you would only be obliged to come up with $10,000 up front.
Using insured loans to finance
A CMHC or GEMICO-insured loan can also be used to finance renovations,
in the event that your new home requires immediate repairs. You
can include these expenses in your mortgage up to 95 percent of
the value. But be warned: the calculation and approval process is
perplexing and may not be worth it.
CMHC or GEMICO may sanction the renovations, but first
it will require quotes from three different contractors. The mortgage
insurers will only dole out the money in installments, which means
your renovation will proceed in fits and starts. If the costs of
enhancement exceed the lesser of $10,000 or 10 percent of the home's
value, you'll have to pay an added 0.5 percent on your insurance
Avoiding mortgage insurance
can be costly
For a high-ratio mortgage, the only conceivable way to bypass CMHC
or GEMICO insurance is to attempt a dual-mortgage scenario. Your
first mortgage would be with a major bank for 75 percent of your
purchase price, and the second mortgage would be with another institution
for the remainder of the cost. But this gambit isn't perfect.
"Most banks won't allow second mortgages to go
above 85 percent of the total value, so you're still having to come
up with 15 percent down," says Ann Pope, a mortgage consultant
with Assured Mortgage Services in Toronto. "Second mortgages
are really not that cost-effective."
Andre Mayer is a freelance journalist
based in Toronto, Ontario.