THE PROS AND CONS OF BORROWING MONEY FOR A DOWN PAYMENT

1. THE PROS AND CONS OF BORROWING MONEY FOR A DOWN PAYMENT

2. Borrowing money to make a down payment on a property isn’t necessarily a bad idea, and in some cases, it can actually save you a lot of money. However, it’s important to note that this only happens under certain circumstances. Read on to discover some of the advantages and disadvantages of borrowing money for a down payment: Pros You can get onto the market faster Sometimes, borrowing money can help you swiftly get on to the market while house prices are still close to an all-time high.

3. Rent money is no longer wasted Gone for good each time you pay it to your landlord or lady, your monthly rent cheque is a big chunk of your money. When you borrow money for a down payment on your own home, you can kiss goodbye to wasted money, and start earning in the form of equity. Build your wealth in the long term Despite the pandemic, home prices in Canada have continued to rise, and getting into the housing market now, could help you build up your wealth over time.

4. Make savings on mortgage default insurance Buying a home with less than a 20% down payment means that you must pay mortgage default insurance (CMHC insurance), and the premium you pay depends on the size of your down payment. Once you go past the 10, 15 and 20% mark, rates drop significantly.

5. Cons Costly repayments When you borrow money from a financial institution such as a bank, it’s highly likely that your interest rate will be much higher than that of your mortgage. If you then opt to cover your down payment with a cash back mortgage, the rate could be even higher, and you could end up paying a higher rate on the whole balance of your mortgage.

6. There are risk increases with lower equity Cushioning you in the event of unexpected repairs or loss of a job, for example, additional monthly debt repayments can be helpful. However, since you need a minimum of 20% equity in your home to be approved for a home equity line of credit, you might find yourself with fewer options available if you’re not able to cover your costs with savings.

7. Additional debt can impact your debt service ratio Lenders determine your mortgage affordability by examining your debt service ratio, and if you take a loan to cover your down payment, this will undoubtedly not go in your favor. In many cases, the amount you can borrow for your mortgage may be significantly reduced due to the cost of paying back your borrowed down payment. Think carefully about whether borrowing money to pay for a down payment will have more pros than cons for you, and if you’re in any doubt, you can talk to a financial advisor. For more detailed advice about the current housing market, talk to an experienced, local mortgage broker.

8. Red Key Mortgage is located in Calgary, Alberta. We are a boutique brokerage with high volume serving hundreds of clients locally and nationwide every year. We have a number of associates dealing in mortgages as licensed by the Real Estate Council of Alberta. As the best mortgage broker in Calgary AB, Red Key Mortgage, will provide all of your available options from the entire mortgage market and allow you to make an educated decision where you'd like your mortgage to go. Red Key Mortgage works with big banks in Canada, as well as over a dozen other AAA lenders. Best of all, our services are paid for by the lenders at no additional cost to our clients. If you are looking for a Calgary mortgage broker, contact us today! We can't wait to get started.