You Can Secure a Condo Purchase with Only a 5% Deposit
Did you know you only need a five per cent deposit to secure the right to purchase one of our pre-built condominium at Triple Crown, no matter if you are a first-time home buyer, buying your next home, or even if you are making a purchase for an investment?
First, let’s clarify our terms; a 5 per cent DEPOSIT is what you need to secure the condominium of your choice at today’s price. This deposit is applied in full towards your DOWN PAYMENT at closing time, which is what the bank requires from you before they provide you with a mortgage.
Once you’ve made a five per cent deposit and signed some papers with us, you are not required to complete the purchase until your closing date after the building is finished in late 2020. That gives you another year to potentially save more money towards your down payment.
Potential for Appreciation
During the first two phases of construction at Triple Crown, our clients put a deposit on their townhouse or condo which secured the appraised price at the time of deposit. Most of them enjoyed the benefits of appreciation while the buildings were being constructed.
While we can’t promise that will happen again in the current softening Canadian housing market, it’s well worth noting condominium prices in the Greater Victoria have not fallen even while home prices in Greater Victoria and other markets across Canada have. In fact, they have risen! According to the Victoria Real Estate Board’s MLS® HPI benchmark valuation, condominium prices increased by 2.6 per cent from April to May from $512,700 to $519,300, even while the value of single detached homes fell by 2.9 per cent across Greater Victoria during the same period.
The reason is simple: Supply and demand. Victoria has one of the best climates in Canada, people are coming here for jobs (Victoria had the lowest unemployment rate in Canada for April), and people are looking for affordable housing options.
That’s not changing anytime soon.
What Happens if Condo Market Values Decrease Over the Next Year?
Most banks lend on whatever is lower; the actual purchase price or the appraised value. The evaluation is completed up front, and then prebuilds are reappraised at the time of closing. If the reappraised value has gone down it’s up to you to make up the difference between the purchase price and the actual appraisal, and that will be above and beyond the actual down payment you planned on putting down.
RBC deals with the appraisal process differently, (which is why we’ve written about and pointed our customers to the benefits of RBC’s Preferred Builder Program).
“If the market changes, and say the market has dipped down a bit, our clients don’t have to worry about making up the difference between the purchase price that they paid and potentially the new appraisal that is lower,” says RBC Mobile Mortgage Specialist Tony Prezuiso.
Saving a Down Payment
Depending on your financial situation, your down payments can range from the minimum 5 per cent for first-time home buyers up to the minimum 20 per cent if your purchasing a condominium as an investment (or more). Obviously, the more you can save towards your down payment, the less interest you will pay through time. As well, any mortgage with less than a 20 per cent down payment requires mortgage insurance. (Unfortunately, this insurance is for your bank’s protection in the case of a default, not your protection). Your premium amount depends on the amount of your down payment. The bigger your down payment, the less you’ll pay in mortgage loan insurance premiums.
Premiums are either added to your mortgage loan or paid as an up-front lump sum. Most choose to add it to their mortgage loan but take note you will be paying interest on your premium at the same interest rate you’re paying for your mortgage.
Here’s an example of how mortgage loan insurance premiums are calculated:
Suppose you want to purchase a pre-build condo for $400,000 and you’ve saved a down payment. If it is less than 20%, meaning you’ll need to get mortgage loan insurance.
To calculate your mortgage loan insurance premium, you take the price of your condo and subtract your down payment. Then take the amount of your mortgage and multiply by the insurance premium. Mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of your mortgage.
Let’s assume you plan to pay off this mortgage over 25 years with a 4% interest rate and monthly payments. Let’s look at the effect the size of your down payment has on the total cost of the mortgage:
|Down Payment||Down payment amount||Mortgage Loan||Mortgage loan insurance premium||Mortgage loan (incl. mortgage loan insurance)||Total cost of your condo|
|20 %||$80,000||$320,000||Not required||$320,000||$584,979|
Securing a prebuild condominium with a 5 per cent deposit at Triple Crown is an excellent, win-win opportunity and makes it much easier to access the real estate market. Give us a call at 250.474.4800 to discuss your plans and financial details. We’re here to help.