The mortgage deposit, also known as the down payment, is an upfront cash payment on a certain percentage of your mortgage. Most lenders require some form of deposit before granting you the loan, as it demonstrates a commitment to paying your mortgage and reduces the bank's risk. Although rules and terms on mortgages vary by bank, some standard rules apply.
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Most mortgages require a minimum of 3 per cent of the total amount as down payment, and can ask for up to 20 per cent. The more you pay, the better. You will lower brokerage fees, lower the cost of mortgage insurance, and increase the quality of your mortgage. A deposit of 20 per cent will erase mortgage insurance fees entirely. "No-down-payment" mortgages are available, but they will have high fees associated with them, especially on mortgage insurance. It is best to pay as much as possible up front.
Private Mortgage Insurance
For any mortgage where the down payment is less than 20 per cent, the bank will require you to get private mortgage insurance (PMI). Mortgage insurance will pay the bank up to 20 per cent of the value of the loan in case you default. The larger of a gap between 20 per cent of the value and your down payment, the more your insurance costs. The premiums will drop over time as you gain more equity in your house, but be sure to discuss insurance payments with your lender before making a down payment.
Any money you use to pay for a mortgage down payment must be your money. It cannot be a gift or a private loan, even from a family member. This is because the bank will need to know that you can afford your monthly mortgage payments, and borrowing will increase your debt compared to your annual income, also called your debt ratio. If your debt ratio is above a certain amount, the bank will not grant you the mortgage.
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