What amount should I establish for my monthly mortgage payments?

House hunting begins at home... with planning. Knowing your affordable price range will bring your house hunting into focus.

How much house you can afford depends on two things: how much you can afford for the monthly mortgage payment, and how much you can invest in the down payment. Monthly payments include the principal and interest on the mortgage loan and property taxes and insurance against fire and other hazards. These four costs are often abbreviated PITI.

The key items are the size of the down payment, the amount of the mortgage and the term – or length – of the loan.

HLC Home Loans Canada offers a Mortgage Affordability Calculator to determine how much you can afford.

Why should I apply for a mortgage pre-approval?

Having a pre-approved mortgage will give you the confidence of knowing exactly what you can spend on a home before you start looking. You will also be protected against interest rate increases while you look for your new home.

How much will I need for my initial investment in my new home?

You'll need a combination of a down payment and closing costs.

Down Payment

The money that you pay up front for a house is the down payment. These payments typically range from 5 to 25% of the total value of the home. The obvious source of money for your down payment is either your savings or the proceeds from the sale of a home you already own.

While it is possible to buy a home with as little as 5% down, the amount of your down payment will determine whether you will have a conventional mortgage or an insured, high-ratio mortgage.

What's the difference?

  • Conventional mortgage: Your down payment is at least 25% of the purchase price.
  • High-ratio mortgage: Your down payment is less than 25% of the purchase price and must be insured by CMHC or GEMI. An insurance premium will apply.

Closing Costs

For high-ratio or insured mortgages, the mortgage provider requires the borrower to demonstrate his or her ability to cover closing costs in the amount of 1.5% of the value of the property. Closing costs can be as high as 3% of the value of the property being purchased and can vary widely depending on:

  • The property being purchased
  • Services required
  • Taxes
  • Applicable insurances
  • Whether the home is new or old
  • Closing dates affecting interest adjustments
  • The balances of any prepaid expenses
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