If you’re buying a home in Canada, you’ll need to save up some cash for a down payment. Given the high cost of homes in various markets across Canada, your down payment will likely be a sizable amount. That said, down payment amounts can certainly vary based on a few factors, including the price of the home, your mortgage type, and your financial health.
Key Points
- Down payments go towards the purchase price of a home.
- The minimum down payment requirement in Canada is 5% of the purchase price, but may be higher depending on the cost of the home.
- Down payments of less than 20% will require mortgage default insurance.
What Is A Down Payment?
A down payment is a lump sum of money that goes towards the purchase price of a home and is typically required to secure a mortgage. The exact amount of a down payment can range from anywhere between 5% to 20% or more and is based on several factors, including:
- The price of the home
- The lender
- The type of mortgage
- The type of property
- The borrower’s credit and financial profile
Down Payment Vs. Home Deposit
There is often some confusion between a down payment and a home deposit. While some buyers may assume that they are the same thing, they are, in fact, different.
What Is A Home Deposit?
A home deposit is a sum of money paid upfront at the time of a home offer. It serves as an indication to the seller that the buyer is serious about the transaction and has the financial means to carry out the process.
The deposit will count towards the final down payment and can be refundable within a certain period depending on the terms of the offer.
Difference Between A Home Deposit And Down Payment
The deposit amount will eventually go towards the down payment. While both sums of money will count towards the purchase price of the home, they serve different purposes.
The home deposit is something that the seller requires to ensure the buyer is serious about the deal and financially qualified, and the down payment is required by the lender to complete the mortgage approval process.
What Is The Minimum Down Payment Required For A Mortgage In Canada?
The minimum down payment amount in Canada is 5% when the purchase price of the home is $500,000 or less. For properties that are over $500,000, the minimum down payment amount takes a tiered approach, as follows:
| Home Price | Minimum Down Payment (% of Purchase Price) |
| Up to and including $500,000 | 5% |
| $500,000 – $999,999 | -5% of the first $500,000 -10% for the amount over $500,000 |
| $1 million+ | 20% |
Mortgage Default Insurance And Down Payments
The down payment amount you make will determine whether you’ll be required to pay mortgage default insurance, which is an additional payment on top of your mortgage payments.
What Is Mortgage Default Insurance?
Mortgage default insurance is a specific type of coverage meant to protect lenders in case a borrower defaults on their mortgage. When your down payment is less than 20% of the purchase price of the home, you’ll be subject to mortgage default insurance. This insurance policy offsets the additional risk the lenders assume when a borrower makes a smaller down payment.
It should be noted that mortgage default insurance is not available on homes that cost over $1 million. As such, at least 20% down is required for home purchases over this price point.
Why Do Lenders Require Mortgage Default Insurance?
When the loan-to-value ratio (LTV) of a mortgage is very high, the risk is also high for the lender. A higher loan amount means you have less equity in the home, which puts both you and the lender at risk.
For example, if you happen to default on your mortgage, the lender will repossess the home and sell it to recoup their losses. But if the home sells for less than what the lender loaned out, the insurer will compensate the lender accordingly for any shortfalls.
How Much CMHC Mortgage Default Insurance Do You Need To Pay?
The Canada Mortgage Housing Corporation (CMHC) is the national housing agency of Canada and is one of three entities that provides mortgage default insurance policies.
Typically, premiums do not apply to mortgages where the down payment is more than 20% of the purchase price, unless the home is located in certain rural areas or is of a certain type of size, such as cottages and student homes.
The CMHC insurance premium charged is based on the down payment size and calculated as a percentage of the loan.
| LTV | Premium on Total Loan |
| Up to and including 65% | 0.60% |
| Up to and including 75% | 1.70% |
| Up to and including 80% | 2.40% |
| Up to and including 85% | 2.80% |
| Up to and including 90% | 3.10% |
| Up to and including 95% | 4.00% |
Keep in mind that if you live in Saskatchewan, Ontario, or Quebec, you’ll also need to pay provincial taxes on the insurance premium.
How Your Down Payment Affects The Total Cost Of Your Mortgage
The bigger your down payment, the lower the loan you’ll need to take out. That also means lower mortgage payments and more equity in your home.
To illustrate how the down payment amount affects the total cost of your mortgage, let’s assume the following:
- Home price of $450,000
- 25-year fixed-rate mortgage
- 5-year term
- 3.5% interest rate
| 5% Down Payment | 10% Down Payment | 15% Down Payment | 20% Down Payment | |
| Down Payment | $22,500 | $45,000 | $67,500 | $90,000 |
| Mortgage Default Insurance | $17,100 | $12,555 | $10,710 | N/A |
| Total Mortgage Required | $444,600 | $417,555 | $393,210 | $360,000 |
| Monthly Mortgage Payment | $2,220 | $2,085 | $1,963 | $1,797 |
Putting less money toward your home purchase will not only mean more money owed on your loan, but it will also mean higher mortgage default insurance costs and higher monthly payments.
Pros And Cons Of Lower Down Payments
There are advantages and disadvantages to low down payments. Be sure to weigh them before you decide how much to put down upfront when taking out a mortgage.
Pros:
- Lower interest rate. A lower loan amount means you’ll need mortgage default insurance. This reduces the risk for the lender, who may then pass some of these savings onto you with a lower rate.
- Money can be spent elsewhere. A lower down payment means you won’t have to tie up all your money into your house, leaving more funds available to be used or invested in other things.
- More affordable. It’s a lot easier to come up with a smaller down payment, making homeownership more attainable sooner rather than later.
Cons:
- Larger loan amount. A lower down payment means you’ll need to take out a bigger loan, which means you’ll owe more.
- Mortgage default insurance. If you make a down payment less than 20% of the purchase price, you’ll have to spend extra money on insurance premiums. Depending on the loan amount, this could add up to be tens of thousands of dollars.
- Higher monthly payments. A higher loan amount means higher mortgage payments as you work towards paying off what you owe.
Pros And Cons Of Higher Down Payments
Putting more money towards a down payment also comes with a few benefits, but there are also some downsides to consider.
Pros:
- Lower (or no) mortgage default insurance. If you can muster up at least 20% for a down payment, you can avoid mortgage default insurance, which can translate into quite a bit in savings.
- Lower monthly payments. While you might have to put forth a larger chunk of money upfront with a big down payment, you’ll benefit from smaller monthly payments as a result.
- More equity in your home. Putting more towards the purchase price of your home upfront means you’ll have a much higher stake in your home in the form of home equity.
Cons:
- Bigger hit to your savings. It takes a long time to save up for a down payment. Once you spend all those savings on a down payment, you’ll be left with little else in your savings account.
- Money tied to an asset. Your home is a valuable asset that will grow in value over time. But throwing all your money into your home means much of your capital will be invested in that one asset, leaving little left over to invest elsewhere.
- Takes longer to save. A bigger down payment takes much longer to save for. This might leave you out of the housing market for longer than necessary.
Where Can You Source A Down Payment?
Besides taking the time to put a few dollars away every month to save up for a down payment, there are other ways to source these funds:
RRSPs. You can tap into your RRSP if you’re a first-time homebuyer. The RRSP Home Buyers’ Plan allows buyers to withdraw funds tax-free, though the borrowed funds must be repaid within 15 years.
Proceeds from the sale of a property. If you already own a piece of property and have intentions to sell it, you can use the proceeds of the sale to be put toward the purchase of another property.
Monetary gift. You can use money given to you as a gift from your parents or other immediate family members. You’ll need to show the lender a gift letter that stipulates that the money is not a loan that will have to be paid back.
Savings. Savings from your FHSA, TFSA or a regular savings account is an acceptable source for your down payment.
| Remember: You must prove that your down payment is yours. Be sure the keep your down payment funds in your account for 90 days and have all the appropriate documents. |
Can You Borrow Money As A Down Payment?
In general, federally regulated financial institutions do not accept down payments that come from borrowed money. CMHC-insured mortgages also do not accept borrowed down payments, however, private mortgage default insurance providers such as Sagen and Canada Guaranty do allow it.
Moreover, some lenders, particularly alternative lenders, may let you borrow money for a down payment if you can come up with the minimum amount yourself.
| Can You Buy A House With Zero Down Payment? The government of Canada got rid of zero down payment mortgages over a decade ago, but it may still be possible for you to secure financing with no down payment by borrowing the minimum down payment. “No down payment” simply means that you’re not sourcing the money from savings to cover your down payment. Instead, you’re borrowing your down payment. |
Provincial Down Payment Assistance In Canada
If you need assistance coming up with a down payment, there are some down payment assistance programs available offered by the provincial governments. These programs are usually for first-time home buyers and those with low incomes.
| Province | Program | Program Info |
| Saskatchewan | National Affordable Housing Corporation’s Down Payment Assistance Program | 3% non-repayable down payment grant. |
| Nova Scotia | Down Payment Assistance Program (DPAP) | Interest-free repayable loan of up to 5% of the purchase price of a home. |
| New Brunswick | Home Ownership Program | Interest-free loan of up to $75,000 for first-time buyers with incomes less than $30,000 |
| Prince Edward Island | Down Payment Assistance Program (DPAP) | Interest-free loan of up to 5% of the purchase price of a home, up to a maximum loan of $15,000. |
Final Thoughts
Unless you can swing a no down payment mortgage, a down payment is a requirement for just about all home loans in Canada. And while you may be able to put down as little as 5%, a higher down payment amount is always best to reduce your overall debt, keep your monthly mortgage payments low, and ensure more equity in the home you purchase.
