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Financing, Mortgages and Insurance What options are best for you and your situation?


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  #1  
Old 2018-06-18, 12:02 PM
jemy1415 jemy1415 is offline
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Default Downpayment vs Upgrades payments

Hello fellow homeowners

I have a question regarding the downpayment/upgrades amount. Our closing date is fast approaching in October and I am making sure we have all of our ducks in a row. We've already given 5% as a deposit to the builder, and to my understanding, this will count as part of the downpayment. But we are doing about 10K in upgrades. Originally, we wanted to pay off the upgrades before closing and thought that it would count towards the downpayment so that we can reach the 10% that way. After speaking to the sale center rep however, She said that any payment given towards the upgrades prior to closing won't count as the downpayment. We are required to pay 10% of the upgrades immediately but any amount not paid however will be rolled into the mortgage. Can someone share their experiences? I suppose we could "roll the upgrades into the mortgage" but adjust the downpayment amount with the lawyer when we meet to finalize everything. We won't have enough to pay the upgrades "separately" and come up with the rest to make a 10% downpayment.

Thank you for any input

Last edited by jemy1415; 2018-06-18 at 12:09 PM.
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Old 2018-06-18, 01:17 PM
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It's a balancing act.

If you roll the upgrades into the mortgage then you need to qualify for a higher mortgage. Will that put you at a tipping point for financing?

If putting it all into the mortgage allows you to still meet the 10% then I'd say you don't have much of a choice.
Just keep in mind that every dollar you mortgage you end up paying for twice over a 20+ year amortized period.
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Old 2018-06-18, 01:33 PM
jemy1415 jemy1415 is offline
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Originally Posted by GregS View Post
It's a balancing act.

If you roll the upgrades into the mortgage then you need to qualify for a higher mortgage. Will that put you at a tipping point for financing?

If putting it all into the mortgage allows you to still meet the 10% then I'd say you don't have much of a choice.
Just keep in mind that every dollar you mortgage you end up paying for twice over a 20+ year amortized period.
Good point Greg, thank you. If we rolled the upgrades into the mortgage, we will be paying them off right away (by putting more money down) as we have the money already. By putting 10% down, we will have less CMHC fees so the amount that we will be technically borrowing will end up being almost the same.
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Old 2018-06-23, 09:14 PM
reens09 reens09 is offline
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If you add upgrades to your mortgage, it simply increases the purchase price of the home. Paying for them up front does not count as a downpayment, it just means the purchase price of your home wont go up. So if your home cost 400,000 and you add 10k of upgrades to your mortgage, the new purchase price of your home will be 410,000. But if you pay for them upfront, your purchase price remains 400,000.

If you add them to your mortgage, you can do one of two things:
1- you can add to your mortgage and take out a higher mortgage to cover the 10k.
2- you can add them to your mortgage then save up the 10k by the time you close and add it to your downpayment, therefore the total mortgage amount will remain the same.

Obviously adding upgrades to the mortgage is the easier thing to do at this moment, as you have to put out less cash, but in the long run you end up paying a lot of interest on it. so if you can save the money and add it to your down payment, thats ideal.
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Old 2018-06-25, 10:13 AM
jemy1415 jemy1415 is offline
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Originally Posted by reens09 View Post
If you add upgrades to your mortgage, it simply increases the purchase price of the home. Paying for them up front does not count as a downpayment, it just means the purchase price of your home wont go up. So if your home cost 400,000 and you add 10k of upgrades to your mortgage, the new purchase price of your home will be 410,000. But if you pay for them upfront, your purchase price remains 400,000.

If you add them to your mortgage, you can do one of two things:
1- you can add to your mortgage and take out a higher mortgage to cover the 10k.
2- you can add them to your mortgage then save up the 10k by the time you close and add it to your downpayment, therefore the total mortgage amount will remain the same.

Obviously adding upgrades to the mortgage is the easier thing to do at this moment, as you have to put out less cash, but in the long run you end up paying a lot of interest on it. so if you can save the money and add it to your down payment, thats ideal.
Option 2 is exactly what we would like to do! Is there any negative effects of having the higher purchase price? Does that affect Proper tax? I hear that an MPAC assessment is how the tax is calculated and that's based on the property value. Does the purchase price also play a role?
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Old 2018-06-25, 10:27 AM
reens09 reens09 is offline
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The only thing i can really see it affecting is your mortgage qualification if you are already close to your maximum purchasing power, but if you are not then you should be fine.

Property tax is 1% of the property value that will be assessed by the city after closing. Any upgrades are likely to increase your home value regardless of how you pay for them so even if you pay for your upgrades upfront and the purchase price remains the same, your property tax will likely increase as opposed to if you left everything basic. Some upgrades are more valuable than others, such as hardwood, upgraded counters, cabinetry in the kitchen etc.

We put approx. 50K of upgrades that we paid for upfront (including the design centre bonus we received) and i am fully expecting our property taxes to reflect this. Same with if you finish your basement afterwards, that will increase your taxes.

Last edited by reens09; 2018-06-25 at 10:29 AM.
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Old 2018-06-25, 01:25 PM
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Quote:
Originally Posted by reens09 View Post
The only thing i can really see it affecting is your mortgage qualification if you are already close to your maximum purchasing power, but if you are not then you should be fine.

Property tax is 1% of the property value that will be assessed by the city after closing. Any upgrades are likely to increase your home value regardless of how you pay for them so even if you pay for your upgrades upfront and the purchase price remains the same, your property tax will likely increase as opposed to if you left everything basic. Some upgrades are more valuable than others, such as hardwood, upgraded counters, cabinetry in the kitchen etc.

We put approx. 50K of upgrades that we paid for upfront (including the design centre bonus we received) and i am fully expecting our property taxes to reflect this. Same with if you finish your basement afterwards, that will increase your taxes.
For the most part upgrades do not affect your property taxes. There are certain upgrades (adding a finished basement, adding a bathroom, adding a bedroom, etc...) which may but most don't (upgrades to counters, tiles, carpets, etc...). So if you and you neighbor buy the same model and have the same sized property and you add $50K in upgrades and your neighbor adds $25K you can expect to pay roughly the same taxes.

That said, if you do go really overboard and add a lot more than the normal in upgrades then they can evaluate you higher.
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Old 2018-06-25, 01:52 PM
reens09 reens09 is offline
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Yeah it really depends what you put in. However, I think it's not realistic to say that upgrades don't matter. Your appraisal is based on the market value of the home and turn key homes that don't require any further renovations come with a higher price. gerapu is right though that minor things like tiles aren't as important. It's mostly the high value upgrades such as hard wood and kitchens, or anything structural that will count the most.

Last edited by reens09; 2018-06-25 at 02:09 PM.
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Old 2018-06-25, 03:18 PM
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Originally Posted by reens09 View Post
Yeah it really depends what you put in. However, I think it's not realistic to say that upgrades don't matter. Your appraisal is based on the market value of the home and turn key homes that don't require any further renovations come with a higher price. gerapu is right though that minor things like tiles aren't as important. It's mostly the high value upgrades such as hard wood and kitchens, or anything structural that will count the most.
I think you will find that things like hardwood and even how your kitchen is finished does not play a part in your MPAC appraisal. If you were looking to sell then yes, those things matter. But for the MPAC appraisal they really don't. The most important things to consider for the MPAC assessment is location, the size of your property (with width being worth more than depth), the living space of your home (with first floor space being worth more than second floor space and basement space being worth even less), the age of your home and quality of construction. Weather you get hardwood or carpet, or you spend $20K upgrading your kitchen cabinets to maple from the standard oak doesn't make a difference. As I mentioned before though, if you go all out and spend way more than the average on upgrades then you may get assessed a bit higher. But $50K in upgrades on a $400k home will probably see you paying the same as the guy who got $20k in upgrades.

Don't believe me, try using the AboutMyProperty function on the MPAC website to compare your home to others. It will give you a good idea of what can affect the MPAC assessment.
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Old 2018-06-25, 05:08 PM
reens09 reens09 is offline
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Oh no, I believe you I see the logic in what you are saying...but I am curious and will check out that tool! What your saying actually works in our favour so I'm not complaining. Haha

Last edited by reens09; 2018-06-25 at 05:11 PM.
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