This past year, it seemed like everyone was either trying to buy a home in a competitive market,
or sell their home while the market was hot. With the prices of homes skyrocketing, it raises the
question of how these high prices affect the down payments required from buyers in Ontario.

While the down payment process is not always at the front of mind when looking for a house,
understanding what is required of you is a fundamental step in the home buying process.

What is a Down Payment?

If you’ve been even slightly interested in the real estate market at all over the years, you’ve
definitely heard the term “down payment” used by a real estate agent or home buyer. The term
refers to the portion of money that a buyer provides upfront that goes towards paying off the
whole purchase price of a home.

A down payment often takes a big chunk out of a mortgage, which is the loan that you repay
that includes the principal amount owed on the house and the interest incurred over the years.

What is the Minimum Down Payment?

When it comes to a minimum down payment, there is a rule of thumb that is often followed. This
standard is that homes purchased for $500,000 or less require at least a 5% down payment.
After $500,000, 10% is expected on the rest.

However, it is highly recommended that 20% of the home purchase price is put down. This 20%
benchmark means that a buyer does not have to purchase mortgage default insurance (also
called mortgage loan insurance).

Mortgage Default Insurance

Mortgage default insurance, in simple terms, is a safety net for banks and loaning institutions
who lend money to home buyers. If you cannot put at least 20% down on a home, you will be
required to purchase this insurance when you take out a mortgage.

In 2008, the housing market crashed due to home buyers defaulting on their monthly mortgage
payments. In order to avoid this, lenders now take out insurance on borrowers who cannot put
at least 20% down on their house. However, mortgage default insurance is not available to
homes that cost more than $1 million, meaning only buyers who can put 20% down are able to
purchase these types of properties. This insurance premium is meant to protect the lender – not
the borrower.

One of the most well-known mortgage default insurance providers is the Canada Mortgage and
Housing Corporation (CMHC) which aims to provide reasonable interests rates and to stabilize
the real estate market.

Average Price of Homes in Ontario

In 2020 and 2021, Ontario saw the average price of homes reach new highs. It was reported
that in December 2021, the average price of a house reached a record high of $922,735. It’s
also been forecasted that the average cost will remain high during 2022.

This has a major impact on the costs of down payments in Ontario. If you were to pay a 20%
down payment on the $922,735 house, you would be paying $184,547 upfront. Another point of
note is that more and more properties are going for over $1 million, meaning that buyers will not
be eligible for mortgage default insurance.

Talk to Professionals About Your Options

If you’re considering buying or selling a house in today’s market, it’s crucial to consult a real
estate professional about your options and budget. Understanding the steps in the home buying
process and what is required from you can help everything flow smoothly.

Reach out to the Your Niagara Home team today!