Toronto housing market has witnessed a large population buying condos either for settlement in attractive neighborhoods of the city or to invest in property. There are several things to consider before purchasing one. The most basic of these factors include- locality of the development, transport, interiors, amenities, and most importantly, the budget range of the condo purchase.
Here, a crucial thing to consider is the down payment that needs to be made for the condo. In this article, you will come to know all the vital details of down payments for condos.
Minimum Down Payment Required for the Purchase
A down payment is basically the amount that the home buyer is supposed to pay at the time of purchasing a home. This amount that is paid as a down payment gets deducted from the actual purchase price of your home. The remaining amount after deducting the down payment is covered up by the mortgage loan that you will be taking for the condo purchase.
The minimum down payment that needs to be paid for the condo depends on the price of the condominium unit that you wish to purchase.
In case you are someone who is self-employed or are having a poor credit score or history, the down payment for you might be a bit higher. It is always advised to have certain savings from your monthly funds to make the down payment for the condo. This would reduce your debts and hence, will be more beneficial for you.
Here’s an estimate of the minimum down payment that one is expected to make:
- $500,000 or lesser: 5% of the purchase amount of the condo
- Between the range of $500,000 and $999,999: 5% of the initial $500,000 of the total purchase amount and 10% of the remaining price above $500,000.
- $1 million or more: 205 of the total purchase amount of the condo
Home Buyers’ Plan for Ease While Making Down Payments
In case you need assistance with the amount you require for making the down payment for the condo, you might fit the eligibility criteria for Home Buyers’ Plan (HBP). This plan allows the individual to withdraw an amount of up to $25,000.
This is completely tax-free and can be withdrawn from the Registered Retirement Savings Plan (RRSP) of the individual. This allowance is given to make it easier for the individual to make the down payment or to qualify for the condo purchase. You are given up to 15 years to make repayment of the amounts that you have withdrawn.
Things to consider before signing up for an HBP:
- If you are fit to make timely repayment
- How much are your retirement savings getting affected by withdrawing the amount for the down payment?
It is essential for you to know that in case you are not able to make the repayment, it could cost you a huge amount in your income taxes. Also, you tend to lose out on any growth while you are repaying the funds.
Mortgage Loan Insurance
A mortgage loan insurance helps in protecting the mortgage lender in case you are unable to make payments for the mortgage. It does not provide any protection to the individual. In fact, sometimes, it is referred to as mortgage default insurance.
In case your down payment is less than 20% of the price of the condo that you’re purchasing, you will have to take a mortgage loan insurance.
An individual can’t take up mortgage loan insurance if:
- The condo values for $1 million or more.
- The loan does not comply with the standards of the mortgage insurance company that the individual has picked.
How Much is the Cost of Mortgage Loan Insurance?
The range of mortgage loan insurance fee that you need to pay lies between 0.6% and 4.5%. This fee depends on the amount of down payment that you have to make for your condo purchase. If your down payment is huge, the lesser will be the fee/ premium of your mortgage loan insurance.
To make the payment of your premium, you can pay them as a part of your mortgage loan. Or, you can make its payment in a lump sum. In case you add this premium to a mortgage loan, you will have to pay the same interest rate for it as you will be paying for your mortgage loan.
When Should You Make the Condo Purchase?
In case the down payment that you are planning to make is lesser than 20% of the total purchase amount of the condo, you can’t really afford a regular mortgage.
In this case, you are left with two options. You can save for a little longer and then purchase a condo. Or, you can make the purchase instantly and borrow a larger sum of money. Check out the few factors associated with both these options.
Option 1: Save for a Little Longer and Then Make a Condo Purchase
- You pay the lesser interest rate for the mortgage.
- There is no need for you to buy mortgage insurance.
- You continue to pay rent (if any) for your existing accommodation.
- The savings required would be higher as the real estate market will also rise as the years pass by.
- There will always be a risk of you spending your savings on other things.
- The risk of not being able to repay the loan reduces as you will be borrowing a lesser amount.
Option 2: Make the Condo Purchase Now by Borrowing a Higher Amount
- You will have to pay higher interest as the borrowing amount is more.
- There will be an increase in costs because buying mortgage insurance would be necessary. The high-interest rate per month would mean higher premiums in general.
- A positive here is that you can stop paying the rent of your current home and shift in your purchased condo sooner. However, that holds true only if your condo purchase is for settlement.
- You will get the condo for the price that exists in the real estate market at present. There are always chances of price elevation as the years pass by.
- There is always a big risk of you taking up more loan that you will be able to repay.
A Few Tips to Help You Save Better and Quicker for Your Down Payment
- Set up monthly goals for saving and track the amount you are able to save.
- Make it a habit of putting aside a certain amount monthly as if you are already paying a mortgage.
- Clear off your credit card debts. This way you’ll have to pay lesser interest and thus, better savings for the condo purchase.
- You can save your work bonuses, tax refunds, as well as pay, raises for the purpose of making down payment for the condo.
The down payment that you’ll have to make if you are planning to buy a condo will depend on certain factors. Also, make sure you go through all the factors involved in making the purchase.
After the down payment as well, repayments have to be taken care of too. Thus, keep in mind all these things and make sure you are prepared to afford the condo completely and moderately conveniently.
To get the latest news and info about pre-construction condo properties, visit our website Precondo.