# avoid CMHC fees by paying 20% down?



## devinci (Sep 25, 2017)

Hi all,

Looking for some advice.

Say for example a home we were looking at was $500k, 20% would be $100k.

Assuming we have no debt, can afford the 20% down, should we do it?

I recently read that you can get lower rates if you have an insured mortgage???, by paying less than 20% down, you pay the CMHC high ratio buyer fees and your mortgage would be insured. Therefore we would be able to get those lower rates? Am I correct in my understanding here?

If we aren't sure how long we are planning on owning, it makes more sense to me to pay the 20% down and avoid the extra fees. If we planning on owning until the home is paid off could things work out better if we saved some cash and put much less down (paying lower mortgage rates if applicable)?

Rough calculations to help me understand would be greatly appreciated. Sorry if this seems trivial, I am learning about this whole home ownership/mortgage thing.

Thank you for your help!


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## Just a Guy (Mar 27, 2012)

I'd pay the 20%. I've never had an issue getting the lowest rates when I do it. Also, cmhc fees are added to the mortgage so you're paying interest on those fees for the life of the mortgage and it's not protecting you at all. In most provinces, if you default on your mortgage, cmhc can still come after you for the money.


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## Jimmy (May 19, 2017)

Pay down as much as possible. Home is $500,000 for ex. If you pay down 10% ( $50,000) the rate is 3.1%. So you pay CMHC 3.15% X ( 450,000) = $13,950.

If you pay down 20% ( $100,000), rate is 2.4% So you pay 2.4% x 400,000 ( $500,000- $100,000 down) = $9,600

So you can save $13,960-$9,600 = $4,360. Return is $4360/50,000 ( the extra down payment amt) or ~ 8.7%.

If you have RRSPs, it is worth using the HBP to get the extra $ if needed . This is a a pretty easy guaranteed 8.7% return you may not get in the market.

https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm


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## Mortgage u/w (Feb 6, 2014)

Depending the lender, there could be a difference between the their conventional and insured rates. Ever since the B20 changes to qualifications in late 2016, this caused most lenders to offer a higher rate for conventional loans. Your concern is a valid one, however, the premium you will pay will most likely offset any rate savings.

Bottom line, don't be a "rate shopper". Look for a suitable mortgage catered to your needs. I've always had the opinion to pay off debt as quickly as possible. Chasing the lowest rate is not always the solution.


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