Over the last few years, real estate prices have appreciated considerably where some first time home buyers have had a hard time qualifying for a mortgage. Nevertheless, some are able to scramble the minimum 5% downpayment (or have some of the downpayment gifted by a family member) to start their journey of home ownership.

When buying a home with 5% downpayment, the mortgage has to be insured per Government requirement. The insurance premium is 2.75% (for 25 year amortization) or 2.95% (for 30 year amortization) which equates to the homeowner having 2.25% to 2.05% equity in their home at the day of closing. In the first few years of homeownership, the majority of the mortgage payment pays for the interest portion and minimal mortgage principal is paid down. It's important to keep in mind that if one is planning to move in 5 years (outgrow the 1 bedroom condo), once the costs (realtor fees, legal fees, downpayment requirement for new home & closing costs) are taken into account, the seller might find themselves to be short of funds which will mean they have to stay for a longer period of time in their current home.

It's important to have a plan to paydown the mortgage principal which fits a person's long term goals. Afterall, getting a mortgage, setting the payment and forgetting about it is not a sound approach to financial freedom.

To discuss your personal mortgage financing needs, please contact me.