Borrowed Down Payment

Scenario of a  Buyer who did not have enough down payment:

A client recently got a job promotion and is earning considerably more than she was last year.  Her increased income prompted her interest in buying her first apartment.  Living in the Vancouver Lower Mainland, she did not want to wait another year to save up for more down payment because she was concerned about rising real estate prices.  Plus she wanted to start building equity as soon as possible!

This client had saved up $8000 but she needed at least $18 750 down payment (5% of $375 000) plus some money for closing costs.

Solution:  She got a line of credit for $15 000 from her bank.  With that line of credit, she had enough down payment to purchase her first home plus some money left over.

She is paying 6% on her line of credit, and therefore she wants to pay it off quickly.  Her mortgage interest rate is only 2.49%.  With discipline she  will pay off her line of credit by the beginning of June 2017.  In the meantime she will have already built up over $12 000 of equity in her apartment by paying mortgage rather than rent!

Borrowing a down payment worked well for this first time buyer.  This will work well for many others, but it is not the best strategy for everyone.  Some borrowers are better off to save up their down payment in cash.  They will qualify for more mortgage money in that situation. It is also important to have a solid repayment plan in place if you borrow your down payment.

It always important to have a thorough discussion about your options with a qualified mortgage broker.