Down Payment, Deposit, Mortgage. Understanding the Money Works (when buying real estate in Burlington Ontario)

For our clients buying real eestate in Burlington, Hamilton or Oakville, Ontario, we often encounter questions about how the money works.  With so many infrequently-used money terms like down payment, deposit and mortgage, it can be very confusing to understand how all that money works, and when the various amounts are due to be paid.  It’s not easy for either first-time buyers, who are new to this topic, or even for repeat buyers who typically only encounter this issue once every seven years.

 

There are 2 key things you need to understand about how the money works.

 

1. What are all the money components? 

2. When are they due to be paid?

1. The Money Components

 First, lets assume you've negotiated the purchase of your Burlington real estate for $400,000. 

 

 Assume also that:

• your down payment will be $100,000, and so
• your mortgage will be $300,000.

Your DOWN PAYMENT is the amout you are providing (likely its mostly the amount you've saved)  of your own funds for the house purchase. 

 

Your MORTGAGE is the amount you'll borow from the bank. 

 

Next, with each Burlington real estate property listed for sale, a DEPOSIT is required as part of the purchase process.  The deposit is a relatively small amount - typically about 5% of the list price. The deposit is a show of good faith on behalf of the homebuyer and an indication that the buyer is financially committed to the purchase.  Think of the deposit as a portion of your down payment that is paid up front.

 

In the diagram, the deposit is $20,000.  

2. When are they due to be paid? 

As shown in the diagram, the deposit is provided within twenty-four hours of the acceptance (finalization) of the Agreement of Purchase and Sale. Buyers should therefore be prepared to provide the deposit at the time of the agreement. 

 

In fact, the deposit is the only portion of the funds that are provided prior to the closing date! 

 

 

 

The mortgage amount and the remainder of the down payment get handed over on the closing date.  The lawyers for both sides, and the bank/mortgage broker for the buyers, work together to complete these final steps.  

 

In a nutshell, the Deposit is an advance, made to the sellers,  that you take out of your downpayment, at the time your offer is accepted.  All other portions of the purchase price, are due at closing.