Only Half of Canadians Know!
Many Canadians have a good understanding of financial services terms. A recent Angus Reid survey revealed that 51 percent of respondents were confident they knew what a mortgage deposit was, with 48 percent admitting they were “not very confident” or “not at all confident” they understood the term.
It’s easy to see why there’s some confusion over the definition, as home buyers often use the terms “deposit” and “down payment” interchangeably. While they both refer to money put forward in the home buying process, here’s some clarification of each term:
A deposit is the initial funds the buyer submits during the offer process to secure or commit to a property they wish to purchase, as a gesture of trust and good faith to the seller. It’s typically made at the time of the offer, or upon acceptance of the offer. There’s no typical amount for the deposit, although, in a hot housing market, an offer with the highest deposit could be more attractive to the seller.
If the seller accepts the offer, the deposit will typically be kept in a trust account — usually by the seller’s brokerage — until it becomes payable.
A Down Payment
A downpayment is the money the buyer pays to the seller to be eligible for financing once the offer is accepted. It’s a lump sum that’s paid out of the buyer’s pocket, not financed through a mortgage. When the time comes to close on the home, the deposit will go toward the down payment and will be a credit toward the home’s purchase price.
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