Is it worth waiting to save 20% down? Pay the insurance premium or wait?
Hi, Ryan Zupan here with the Mortgage Centre City Wide. Last week, we talked about mortgage insurance, what it is & what the premiums are, and this week we’re going to talk about whether it’s worth buying today, paying the premium, or waiting until you have a 20% down payment & avoid the premium all together.
Let’s look at this example. Let’s say you want to buy a $400K condo &, right now, you have 5% saved for a down payment – $20K. The CMHC premium in this case is $10,450. To avoid paying that, you will need $60K MORE than you have right now. I’m going to need $80,000 for a 20% down payment. Ask yourself, how long will it take you to save that $60K? 4 years? 5 years? Maybe longer? How much higher do you expect property values to have increased by that time? More than that $10K? Is it worth waiting?
Let’s say you are able to save $12K / year & it would take you 5 years to save the 20% down payment. If you went ahead & bought today with 5% down, paid that premium, then just applied that $12K per year as a lump-sum on your mortgage, not only will you pay off that premium in a year’s time, but, compared to buying with 20% down, after your 5 year term, you will have a lower outstanding balance, a lower payment & be 5 years closer to paying off your 25 year mortgage than you would waiting. All this AND you get to buy a home today, for today’s prices, with interest rates still much lower than they’ll likely be in 5 years & avoid paying rent for the next 5 years.
If you’d like more information on the insurance premiums, or you’d like me to calculate how much the premiums are going to cost you – is it worth you buying today or is it worth waiting – contact me, I’m Ryan at City Wide Financial.