If the prospective home buyer, does not have 25% of the purchase price as a down payment, the Canadian mortgage system calls for he/she to pay a "default insurance" premium through the lender to an insurance company (of which Canada Mortgage & Housing Corp is one) to protect the lender against losing money. The lesser the down payment, the greater the insurance premium. This insurance give the home buyer very little, it is intended to protect the lender against losing money in a default situation. The present rules will allow a first time buyer to purchase with as little as 5% down. Other than first time buyers, 5% down payment purchasers were restricted to those who: a) made no profit on the sale of their existing home, and all the money from the sale had to go as down payment on the new home, b) were involved in a separation or divorce situation, c) had to relocate to obtain employment. Is this the beginning of a new era? The rules are changing! Canada Mortgage & Housing Corporation (CMHC) has just announced that their "First Home Owner Loan" is being cancelled and after May 11, 1998, anybody (OAC) can purchase a residence with the 5% down rule. The down payment must still be proven as coming from your own resources, or as a gift from a direct relative. There is a catch to this new rule. The insurance premium that goes along with this 95% financing has just gone up by 50%. Prior to May 11, 1998, 95% financing for first time buyer (and secondary buyers described above) cost the new homeowner an insurance premium of 2.5% of the mortgage amount ($2500 on a $100,000 mortgage). After May 11th, the new premium is 3.75% ($3750 on a $100,000 mortgage), and increase of 50% over the old rate. This amount can still be added to the mortgaged amount so you really don't feel the cost, but it remains a very expensive proposition. Let me explain. If you were to borrow only 90% financing, the premium remains at 2.5% of the mortgage amount. So on that if you were to buy a $110,000 home with $11000 down (10%), the mortgage needed would be $99000, plus the insurance premium of $2480. For a total mortgage of $101,480. If you only had 5% down, the mortgage would be $104500, plus the insurance premium of $3920. So for the difference of $5500 (5% down versus 10% down), you are paying a premium increase of $1440 ($3920 versus $2480). It would be less expensive in the long run to borrow the difference on a credit card at 20% over 4 years. The fact remains that this product (95% financing) will sell very well and that the Crown Corporation (CHHC) will reap the rewards of increased premiums overall. It should be mandatory for lending institutions to educate or enlighten their clients that a side loan or credit card advance for that extra 5% would save them literally tens of thousands of dollars over the life of their mortgage. The odds against that happening are astronomical. Again, the Consumer pays. If you are thinking of buying a home in the foreseeable future, cut out this article a to remind you that 90% financing should be your maximum loan. Anything beyond that is very expensive! The mortgage products are changing! Lenders today are vying for market share, and for optimum yields. All the mortgage lenders are trying to confuse the marketplace with "apparent" deals. Most are offering some kind of bonus, cashback, or reduced rate for those Consumers who will sign on the dotted line for an extended period of time. Some offer to pay your penalty to get out of another lending institution. This writer has no objection to the long term rate hype. I think the rates are about as low as you are going to see for a while. But I do object to the tactics some lenders use to mask higher yields. One particular lender offers to reduce the first year's rate to 4.5% on a five year term, if the borrower will sign up at the posted rate (6.8%) for the next four years. It would be better for the Consumer to get a reduced rate for the whole five years and keep the payment at the 6.8% level. The overall savings would be far greater than the suck-in plan described above. Buyer beware!