The pandemic has changed the economic portrait of many families.
Despite an uncertain context, many of them managed to save more (with a savings rate of 28.2% for 2020).
This is the case of Marie-Josée and her spouse, Luc.
New owners of a single-family home, they chose to put the minimum down payment of 5% when their financial situation allowed them to invest a larger amount.
Did they make the right decision?
Priority: diversify your investments!
According to a notary working in the greater Montreal market, the excess savings of Quebec families, accumulated since the start of the pandemic, has boosted the number of real estate transactions without having the same impact on down payments. Seeing their capital increase, families became eligible for larger mortgages. They preferred to take out a higher mortgage without increasing the amount of the down payment. Why ? To diversify their investments.
Like Marie-Josée and Luc, they choose to put a 5% down payment on their house while keeping an additional amount either to acquire a cottage, to invest in children’s education savings plans or on the Stock Exchange.
Increase in insured loans
Faced with an economic context weakened by the pandemic, it is not surprising to see buyers increasingly cautious about their savings. Succeeding in raising 5% of the value of a property, even being financially comfortable, it remains a challenge. By becoming the owner of a home of $ 400,000, our couple of buyers still paid an amount of $ 20,000 for the down payment.
The choice of Marie-Josée and Luc is part of a trend we are currently observing, that of a marked increase in insured loans (5%) compared to conventional loans (20%).
Caution is in order
Buying a home involves expenses that go beyond mortgage payments. Hence the importance of having the necessary funds to be able, when the time comes, to absorb the unforeseen.
Marie-Josée and Luc have therefore been vigilant in choosing not to increase their down payment. They will thus be able to preserve their financial autonomy.
ADVICE
- Don’t wait until you have 20% down to buy your home. If you have them, great, otherwise it will probably be more beneficial in the long run to pay the minimum.
- It is best not to buy to the fullest of your financial capacity. If you choose the maximum loan given by the bank, make sure you know your expenses and the budget you will need to meet them.
Ghislain Larochelle is a professional registered with the Ordre des ingénieurs du Québec and the Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ).
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