I was speaking to a client recently who was trying to justify the addition of high ratio mortgage insurance to his mortgage. The choices are, should I buy now as I have 5% to put down on a house, or should I wait a couple of years until I can come up with 20% to avoid high ratio mortgage insurance?
If you are to put down 5% on the purchase of a house your insurance would be 2.75% of the mortgage amount. For an easy example lets work with $400,000. So 5% down would be $20,000 leaving you with a mortgage amount of $380,000. With High Ratio Mortgage insurance like CMHC (Canadian Housing and Mortgage Corporation) you would add 2.75% of the mortgage amount so it would end up being $10,450 making the total mortgage amount today $390,450. It is a pretty hard figure to swallow especially considering you worked really hard to get the down payment in the first place.
In theory when you buy a house you are expecting the value of it to increase. I was looking at realtor statistics and found one statistic that stated the average sale price of a home in Calgary rose by 10.3% from 2012 to 2013. That being said, the house you bought for $400,000 now has a value of $445,930.88 in just 1 year, which more than justifies the extra expense of the high ratio mortgage insurance. What if it took you 2 years to save up 20%,? That same house might cost you around $490,000 which essentially becomes a loss depending on how you look at it.
If it is high ratio insurance that is preventing you from buying you might want to rethink that.
Contact me now to get pre-approved or approved for the purchase of a house.
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