Mortgage default insurance was introduced to stimulate the housing market. Mortgage default insurance allows borrowers to borrow beyond the lenders maximum loan to values by insuring the lenders against any potential risks associated with borrowers defaulting on their mortgage.
These days you either pay mortgage default insurance or you come up with a down payment of 20%. As mortgage default insurance costs are expensive a lot of people will choose to save over years to come up with the 20% down.
The mortgage landscape has changed over the last few years which has increased costs to lenders at 20% down which in turn has led to increased costs to the consumers by increasing rates with 20% down
For example, a lender I use quite a bit offers an insured special 5-year fixed rate of 3.44%. So, purchases where the down payment is 5% to 19.99%. Alternatively, if you put down 20% the 5-year fixed rate is 3.74%.
In theory house prices are expected to rise some year over year. What if that house you wanted to save for is more expensive when you are ready to buy? The down payment will now be higher to make the 20% which may push you back even farther. You have also lost any potential equity earned over that same period in mortgage payments and property value increase.
So, in short while there may be a good reason to save up 20%, you may be in a better position if you don’t.
Why pay someone else’s mortgage when you could be paying your own? Something to think about!!
Call me now to get pre-approved or pre-qualified or simply just to ask questions.
Best Regards,
Shawn Mooney | Bayfield Mortgage Professionals Ltd.
Broker of Record
Your Mortgage Broker for Life
Bus. # 403-945-8769 | Mobile # 403-828-1838
Email: mortgages@shawnmooney.com
Website: www.shawnmooney.com
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