What is Default Insurance?  

If you are applying for a high-ratio mortgage (exceeding 75 % of the property's value), it must be insured against default.  

Mortgage default insurance protects lenders by guaranteeing them the payment if you default on your payments, but you are still responsible for the debt.  

Borrowers must pay the insurer 1.25 % of the mortgage amount when the loan-to-value ratio is between 75 % and 80 %; 2 % between 80 % and 85 %; 2.5 % between 85 % and 90 %; and 3.75 % between 90 % and 95 %.  

While the insurance premium can be paid up front on closing, it's usually added to the amount borrowed. Be aware that this means you're paying interest on the insurance premium.  

RSP Program for First Time Home Buyers  

The federal government provides help for first time buyers in the form of The Home Buyers' Plan, otherwise known as the RSP Program.  

It let's first time buyers, including anyone who hasn't owned a home in the last 5 years, borrow up to $20,000 per spouse from their RSP interest-free to buy a home, to be repaid over the next 17 years.  

But only funds that have been in your RSP at least 90 days can be withdrawn. To get that free cash, take advantage of your unused RSP limit. If you have $3,000 in unused RSP contributions, have saved $3,000 for a downpayment and plan to buy a home in the next few months, here's what to do.  

Deposit the $3,000 into your RSP and keep it there for at least 90 days, then remove it under the Home Buyers' Plan when you buy your house.  

If you're in the 40 % tax bracket, you'll get a $1,200 income tax refund when filing your next tax return, simply by parking your down payment money in your RSP for at least 90 days.  

The Advantages of a Resale Home    

There are many advantages to buying a resale home. You'll see exactly what you're buying, the floorplan, the location and neighbourhood.  

Recreational facilities, schools, transportation, shopping and support services will already be established. You'll also have an opportunity to negotiate for existing appliances, window coverings, central air conditioning and central vacuum equipment, light fixtures and other extras that you'd have to install in a new home. Improvements such as fences, landscaping and paved driveways are automatically included.  

You can reduce the risk of being surprised by hidden defects by having a home inspector examine a resale home before the offer becomes firm.  

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.

Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.