The mysteries about home ownership should be identified, addressed, answered, then and only then can you make an educated decision on whether or not you should attempt to purchase. First mystery...the downpayment.

The downpayment on a home, if this is your first purchase, is only 5% of the purchase price (ie $5,000 down on a $100,000 purchase). This 5% cannot be borrowed unless it's from your RRSP, or against an identifiable asset. The downpayment maybe:

a) cash accumulated in the bank over at least the last three months. Lump sums deposited to the account within the last three months may be queried.

b) a gift from an immediate relative (mother, father, sister, brother). A letter from the benefactor must accompany the gift, as well as a copy of the gift cheque. This letter must indicate that the money is indeed a gift and that it does not have to be repaid.

c) a loan from your RRSP (if the vehicle that has your RRSP will allow it). This loan must be repaid to your RRSP over the next 15 years in equal yearly payments of principal.

d) a loan against an asset such as car, boat, bonds, term deposits etc. as long as the lender of this loan is prepared to acknowledge that they are "fully secured", and that the payments on this loan are indeed being represented on your application, and calculated in your debt service ratios.

e) accumulated cash in an "OHOSP"(Ontario Home Ownership Savings Plan) account.

With the exception of the "deposit" which you have already given to the Vendor or his/her Agent, the downpayment is given to the Vendor on the day you actually buy the home (called the "possession date") through your lawyer. This money coupled with the mortgage money should account for the full purchase price.

If your downpayment is more than 5% of the purchase price but less than 25% of the purchase price, you require what is termed a "high ratio" mortgage. If your downpayment exceeds 25%, then you require a "conventional" mortgage.

The High Ratio Mortgage can be obtained through any financial institution but must be "insured against default" through Canada Mortgage and Housing Corporation. No lending institution in Canada that takes in deposits from the Consumer may lend money beyond 75% of the purchase price of the property without this insurance coverage. High ratio insurance is not life insurance, nor is it disability insurance, it is simply insurance to protect the lender in case you should happen to default.

charge premiums, including CMHC and MICC. The premium depends on the "loan to value ratio" (that's the amount of mortgage versus the value of the property). The more the downpayment, the less the risk therefore, for 85.1% to 95% financing, the premium is 2.5% of the loan amount ($2500 on a $100,000 mortgage), 2.0% premium from 80.1% to 85% financing, and 1.5% premium from 75.1 to 80% financing. Below 75% financing need not be covered by CMHC or MICC. The insurance premium can be added to the mortgage or paid in cash, thus avoiding interest on the premium. In other words, a $100,000 mortgage (being let's say 90% financing) would be registered as $102,500 mortgage if the premium was added. You would end up paying interest on the whole amount. Your lending institution would then give $100,000 to your lawyer to pay the Vendor and give $2500 to the high ratio insurance company on the "possession date". If you should happen to mess up your payments, the lending institution that has your mortgage would attempt to collect from you, but if unsuccessful, would simply ask the insurance company in question to pay them out. Then the insurance company would come after you to pay or proceed with legal action to gain the right to sell the property from under you. Less than 1% of all mortgages end up this way!

The high ratio insurance company will also charge an application fee through your lender. The fee is $75.00 plus an accredited appraisal of the property (costing $190.00 in the city), or your lender may ask the insuring company to do their own appraisal/inspection at a cost to you of $235.00 If your application is denied by the insurer, a refund is usually available. You don't have to worry about which company to pick, your lending officer takes care of all that stuff.