CTV Morning Live: Talking down payments!

Kelly: We’re joined once again by senior mortgage advisor Clinton Wilkins and today we’re talking down payments. Good morning Clinton!

Clinton: Morning, thanks for having me!

Kelly: So is more MORE when it comes to down payments?

Clinton: Well I think it’s a double-edged sword so the minimum down payment required in Canada is 5% but to avoid the Canadian Mortgage Housing Corporation, Genworth, or Canada guarantee insurance you need to put down 20%. But, you know there can’t be some challenges there. The rates are typically a little bit higher if you don’t get an insured mortgage which is typically what we consider high ratio so anything above 80%.

Kelly: Right, so that 20% down payment is that taking some people out of the market.

Clinton: You know what, I think that there’s pros and cons to both.

Kelly: We’re getting used to it.

First time home buyers

Clinton: We’re getting used to it and, you know, first-time home buyers anytime it’s an owner occupied property you can finance up to 95 percent so all you need is 5% down.

Kelly: So I guess really what it does is let people who can actually afford the house buy the house like it’s for our own good but still it can feel a bit like a barrier.

Clinton: It can definitely be a barrier to entry now there are some solutions around down payments. You know, the typical down payment would come from an RRSP or from savings or investments but you can also get a gifted down payment. We love the bank of mom and dad it’s the best bank ever.

Kelly: If you’re a millennial you’re calling them all the time.

Clinton: 100% and I think there’s more and more gifted down payments happening but there are some alternative solutions as well. So there’s a product called flex down so you’re able to borrow the down payment, you can borrow it off a line of credit, loan, credit card hypothetically, I wouldn’t recommend that but it is doable so that’s an option and there’s also some cash back products.

So, through the credit union network a hundred percent financing, hypothetically, is available. It’s through a cash back, still at ninety five percent financing, they’re basically giving you five percent cash back for the down payment.

Interest rates

Kelly: Which of those options has the lowest interest rate?

Clinton: 100 percent the best way to do it is your own savings or gifted down payment. We consider that the same. You’re going to get the best cost for the insurance and it’s typically a lower risk type transaction. Typically, if you go into a cash back product the rates are going to be significantly higher and typically you may pay that cash back twice fold so, you know, them giving you 5% cash back you may be paying 10% back based on the interest rate.

Kelly: Okay, so there used to be a break for first-time homebuyers is that still the case?

Clinton: You know, anyone can still qualify for 95% financing as long as long as it’s for your owner occupied property. Sometimes people will buy one home and then they decide that down the road they’re going to rent that one and buy a second one and you can still qualify for 95%.

The big break for first-time homebuyers is they are able to access funds out of their RRSP tax-free. So you can borrow up to twenty five thousand tax-free and then you have fifteen years to pay it back into your RRSP without being taxed. Which i think is great and depending there’s different provinces they have provincial programs as well.

So PEI, Nova Scotia, Newfoundland have some programs where you are able to access some government grants and government financing that you’re able to help with the down payment which is great and each province has a little bit of a different program.

I really think it’s important, you know, when you’re going through the process of buying a home to sit down with an unbiased mortgage professional figure out what you can qualify for and how much down payment you’re really going to need to get into that home that you want.

Kelly: Right, and maybe the home you want is not the home you’re going to buy first either right? So you need to be smart about this.

Clinton: Yeah, and I think that it comes back to that old adage you know you don’t want to be mortgage poor. Nobody wants to sit in a house that they can’t furnish, and eat Kraft Dinner.

Kelly: Right, yeah but it looks beautiful from the outside.

Clinton: 100%.

Kelly: It’s good for a house party because there’s no furniture in there.

Plan on saving

Clinton: Yeah exactly, and I really think for down payments the best plan is really about saving. I think getting on an automated savings plan really has a lot of value. You know, typically people get paid bi-weekly or semi monthly or weekly.

Get your savings set up on that pattern too – and just have it automatically debited from your bank account. I think out of sight out of mind. It’s sometimes just so easy to debit off of your savings but if it’s in a product that you can’t access so easily like an RRSP or a TFSA huge value.

Kelly: And we always spend what we make right so if we don’t have it, we can’t spend it, we won’t miss it! It’s just never there.

Clinton: Exactly and I think it’s all about getting a plan and figuring out what’s right for your household. Everybody’s situation is unique so I think that having a look at your total package I think is definitely very valuable.

Kelly: Okay thanks for these tips, i’m going to get saving!

Clinton: For sure!

Kelly: Okay, we’ll see you again soon.

Clinton: All right, thanks for having me!