Do you know about the sliding scale rule when getting a mortgage?
You’re likely aware that the minimum downpayment to avoid mortgage default insurance is 20%. What many may not be aware of is that a downpayment of greater than 20% will sometimes be required.
A mortgage sliding scale is where the minimum downpayment changes once the purchase price hits a predetermined threshold. A lender will accept the standard 20% down payment, but only up to a certain value. Larger mortgage loans pose a greater risk to the lender, so once the purchase price exceeds this value, a higher downpayment is required on the excess amount.
For example: a lender may accept 20% downpayment up to the first $1.5M, but may require 50% downpayment for any amount above $1.5M. This is what is known as a mortgage sliding scale.
All lenders have a sliding scale, how they each implement this may vary slightly based on location and other considerations.
Anytime you are planning on purchasing a property, never assume you’ll be okay because you have a 20% downpayment. Especially if your budget is over $1.5M, you’ll definitely want to check with an experienced Mortgage Broker to include the area and types of properties you are planning on making an offer on. By doing so, you ensure we won’t run into any sliding scale complications and at least you will be prepared to adapt a strategy accordingly.
If you have any questions about how the sliding scale works or want more information, contact me: myhang@myhang.ca