With the introduction of British Columbia’s mortgage assistance program to help first-time homebuyers, you may be curious as to what an average mortgage payment in Vancouver looks like. According to the Canadian Real Estate Association (CREA), the average home price in Vancouver has decreased by 3.8% since 2015, but still sits at a lofty $895,084.
To put this into perspective, the average home price in Vancouver is $118,400 higher than the average home in Toronto and is three times the average home price in Halifax.
With the average price tag on a Vancouver home sitting at just below $1 million, it’s understandable as to why B.C. introduced a new program to help first-time home buyers. If eligible, new homeowners can receive a 25-year interest and payment-free loan for the first five years up to a value of 5% of the purchase price of their home, capped at a maximum of $37,500.
The program does have certain restrictions: it will only apply to homes with a maximum value of $750,000, and funds provided through the program must be matched by the home buyers. Since the average home in Vancouver is above $750,000, many first-time homeowners will not eligible for the program. To calculate the average mortgage payment for a home in Vancouver, we’ll ignore the new mortgage assistance program.
To figure out the minimum down payment on a home, the following formula can be used:
- If the home price is $500,000 or lower, the minimum down payment is 5% of the home price. The formula is as follows: minimum down payment = house price x 5%
- If the home price is above $500,000 the minimum down payment is 10% of the portion of the home’s price above $500,000 plus 5% of $500,000 (which is $25,000). The formula is as follows: minimum down payment = (house price -$500,000) + $25,000
- If the home price is $1,000,000 or more the minimum down payment is 20% of the home price. The formula is as follows: minimum down payment = house price x 20%
Given the average home price of $895,084 the minimum down payment required is $64,508. The calculation is as follows:
- Proportion of house price above $500,000: $895,084 – $500,000 = $395,084
- Minimum down payment on proportion of house above $500,000: $395,084 x 10% = $39,508
- Minimum down payment on first $500,000 of house price: $500,000 x 5% = $25,000
- Total minimum down payment: $39,508 + $25,000 = $64,508
One of the most important numbers needed to determine a mortgage payment is the mortgage rate. This defines how much interest you will pay on your mortgage; it can be a fixed rate, or a variable rate and can span many years.
If you select a fixed rate, your mortgage payment will always be the same amount since your rate remains constant throughout the term. People usually select fixed rates if they are risk-averse and prefer to know the exact payment which will be deducted from their account every month. With a fixed mortgage rate long-term budgeting is easier as you know the exact mortgage payment you will be charged every month during your term.
In contrast, a variable mortgage rate fluctuates with the prime rate. Since variable rates are dependent on the prime rate, your mortgage payment will fluctuate at the prime rate increases or decreases.
With a variable mortgage rate, long-term budgeting becomes more difficult because you won’t know your exact monthly mortgage payment a month or year from now. However, you can make an accurate prediction by looking at historic prime rates and forecasting future rates.
Getting the best mortgage rate is the easiest way to reduce your mortgage payment. The most popular mortgage rates are 5-year fixed and 5-year variable rates. To calculate the average mortgage payment in Vancouver, we’ll use the best 5-year fixed rate currently on the market of 2.54%.
The amortization period is the length of time you’ll take to pay off your mortgage. This time period is different from your mortgage term, which is how long your mortgage rate is locked in for. Amortization periods can be of any length of time, with the most popular term being 25 years. This is the period we’ll use for our calculation.
The payment frequency is how often you would like to make your mortgage payment. The typical frequencies are monthly, biweekly and accelerated biweekly. To calculate the average mortgage payment in Vancouver, we’ll use a monthly payment.
Using Ratehub.ca’s mortgage payment calculator, the average monthly mortgage payment for a $895,084 home in Vancouver (if you’ve made the minimum down payment, and selected a 25-year amortization period and a 5-year fixed mortgage rate) is $3,872.