Edmonton Real Estate Blog

Larger Down Payments Sometimes Mean Higher Mortgage Rates

It would seem logical that putting down a large down payment on a property would be a smart move. As it turns out, a smaller down payment may actually save you money in the long run. Because of government mortgage default rules on insurance, it is not as much of a risk for lending institutions to front a loan to someone with a five percent down as it is to a borrower with a heftier 20 percent down payment.

It turns out that 20 percent is the magic number. Borrowers in Canada not putting down at least that amount are required to purchase default insurance on their mortgage if they are dealing with a traditional bank that is federally regulated. The cost for this insurance can run as much as 2.75 percent of the amount of money borrowed on a typical 25-year amortized loan. The loan is guaranteed by the Canada Mortgage and Housing Corporation, a Crown corporation. Another words, the federal government is backing that loan.

Secondary lenders, notes Canadian Mortgage Trends’...