*This post was created in collaboration with Mortgage Maestro
With home prices inflating at a much higher rate than income, many Canadians struggle to become homeowners. The spike in housing prices is most significant in Canada’s major cities such as Toronto and Vancouver, where the average home cost is over the $1 million mark. In these cases, buyers are looking at having to manage $1 million mortgage monthly payments in Canada.
In this article, we delve into what it takes to get a million-dollar mortgage in Canada so you can start planning today.
Key Points
- The cost of a $1 million mortgage is based on multiple factors, including the interest rate, loan term, and amortization period.
- The total interest you pay over the life of a $1 million mortgage can range substantially based on the length of your loan.
- Mortgage default insurance is not available on homes valued at $1 million and over, so you’ll need to put at least 20% down when you buy a home. However, effective December 15, 2024, the home price cap for insured mortgages will increase to $1.5 million.
What Will Your $1 Million Mortgage Monthly Payment In Canada Be Like?
The interest rate, payment frequency, and amortization period will determine what your monthly mortgage payments will be on a $1 million mortgage.
The following tables represent the approximate mortgage payment amounts for a $1 million mortgage using different interest rates and amortization periods.
How Interest Rates Can Impact Your Mortgage Payments
Example 1: 4.25% interest vs. 6.75% interest (assuming a 25-year amortization period):
| Interest Rate | Monthly Mortgage Payment |
| 4.25% | $5,396.60 |
| 6.75% | $6,850.50 |
In this example, a rate of 6.75% would mean an extra $1,453.90 per month in mortgage payments compared to a rate of 4.25%.
How Your Amortization Period Can Impact Your Mortgage Payments
Example 2: 15- vs. 25-year amortization period (assuming an interest rate of 5.25%):
| Amortization Period | Monthly Mortgage Payment |
| 15 years | $8,009.09 |
| 25 years | $5,959.18 |
In this example, stretching your mortgage payments over a 25-year period versus a 15-year period would shrink your payments by $2,049.91 per month. It should be noted, however, that you’ll pay much more in interest over a longer amortization period, which we’ll discuss later.
How Much Interest Would You Pay On A $1 Million Mortgage?
The amount of interest you pay on a $1 million mortgage depends on the interest rate, payment frequency, and amortization length. In general, the longer the amortization period, the lower your monthly payments. However, you’ll pay more in interest with a longer amortization.
To give you an idea of how much interest you could pay on a $1 million mortgage, let’s illustrate using an example, assuming a 5-year fixed-rate term and a monthly payment schedule:
| Interest rate | 15-Year Amortization: Total Interest Paid | 25-Year Amortization: Total Interest Paid |
| 1.5% | $116,959.40 | $199,151.38 |
| 2.0% | $157,629.27 | $270,353.65 |
| 2.5% | $199,125.94 | $343,898.69 |
| 3.0% | $241,439.12 | $419,736.50 |
| 3.5% | $284,557.68 | $497,811.00 |
As you can see, the interest rate and amortization period both play a significant role in the amount of interest you pay on a $1 million mortgage.
How Much Income Do You Need For A $1 Million Mortgage?
To determine how much income you would need to get a $1 million mortgage, we’ll illustrate using the following variables:
- 25-year fixed-rate mortgage
- 5-year term
- 6.25% interest rate
Keep in mind that even though your contract rate may be 6.75%, you would still have to qualify for an additional 2% as part of the mortgage stress test. In this case, you’d need to qualify at 8.25% (6.25% + 2%), since this is greater than the current minimum qualifying rate of 5.25%.
Based on the above figures (assuming an 8.25% rate), your monthly mortgage payments for a $1 million mortgage would be $7,792. Yearly, you’d pay $93,507 in mortgage payments alone.
You’ll also have other expenses related to your home, including property taxes and home insurance. For illustration purposes, let’s say these additional expenses cost you about $10,000 per year. When you add this amount to your annual mortgage payments, you’re looking at annual housing costs of $103,507.
How Much Housing Debt Can I Carry?
The Canada Mortgage and Housing Corporation (CMHC) restricts your monthly housing costs to 39% of your gross monthly income. That means you shouldn’t spend any more than about one-third of your yearly income on housing costs.
Using the above example of $103,507 in housing costs per year, you would need to earn at least $265,403 ($103,507/0.39) to qualify for a $1 million mortgage.
Because of these high costs, many $1 million mortgages are cosigned by two or more individuals. By combining savings, ensuring solid credit for all parties, and maintaining a strong career, a million-dollar mortgage is possible.
Debt Service Ratio Requirements For A Million-Dollar Mortgage
Banks also consider the debt-to-income ratio, meaning they check your earnings compared to your current debt to ensure you have enough income to pay the mortgage and other debts.
As mentioned, a rule of thumb is to keep your debts under 32% of your income. But there are specific limits to your debt service ratios that may determine whether you can qualify for a mortgage:
- GDS Ratio – This ratio refers to the share of your monthly income that covers your housing costs. To qualify for a million-dollar mortgage, your total monthly housing costs must not be more than 39% of your monthly gross income.
- TDS Ratio – This ratio refers to the share of your monthly income that covers your housing costs and all other debts. To qualify for a million-dollar mortgage, your total monthly housing costs and other debts must not make up more than 44% of your monthly gross income.
Can You Get Mortgage Default Insurance On A Million-Dollar Home?
Mortgage default insurance protects the bank in the event the homeowner defaults. Any home with a down payment of less than 20% is considered a high-ratio mortgage. All mortgages that fall into this category require mortgage default insurance.
However, million-dollar homes differ significantly because mortgage default insurance is unavailable for homes over $999,999. All three companies in Canada that can offer this insurance — CMHC, Genworth Financial, and Canada Guaranty — do not provide this insurance on properties $1 million and over.
Anyone looking to purchase a house worth $1 million or more must provide at least a 20% down payment. However, as mentioned earlier, this cap will increase to $1.5 million by December 15, 2024. That means you’ll soon be able to buy a home worth up to $1.5 million and still make a down payment of less than 20%.
How Much Of A Down Payment Do You Need For A Million-Dollar Home?
As mentioned, mortgage loan insurance is not available for houses worth $1 million or more. As such, the down payment required on a property at this price point is 20% of the home value. But come December 15, 2024, this home price cap will increase to $1.5 million.
While this represents the minimum amount you can put down, it is not the maximum. Higher down payments drastically reduce the total cost of the loan, because you’re borrowing less and therefore will pay less interest.
Minimum Down Payment By House Value
The following represents the minimum down payment requirements according to the purchase price of a home. These requirements take a tiered approach. So, the higher the home price, the higher the down payment amount needed:
- Less than $500,000 – 5%
- $500,000 to less than $1 million – 5% on the first $500,000; and at least 10% of the remainder
- $1 million+ – 20% ($1.5 million as of December 15, 2024)
Where Can You Get A $1 Million Mortgage In Canada?
Qualifying for a mortgage for a million-dollar home can be difficult. Using a mortgage broker can help you find multiple lenders you do qualify with.
Here are just some of the reasons to use a brokerage for a $1 million mortgage:
- One-stop shop — Brokers make it easy to shop for the best mortgage products with the lowest rates.
- No charge — Mortgage brokers don’t charge borrowers. Instead, they’re paid by lenders.
- Large network of lenders — Brokers work with multiple lenders, making it easier to compare various products.
- Lower rates — Since mortgage brokers can access more lenders through their vast network of professionals, they can find the best deal for you.
- Independent — Brokers don’t work for a specific lender. As such, they have your best interests in mind, not the lender’s.
Programs Available To Help You Pay A $1 Million Mortgage
A handful of government programs are available to help you afford $1 million mortgage monthly payments in Canada:
First-Time Home Buyers’ Amount
First-time home buyers can claim the First-Time Home Buyers’ Amount on the purchase of their first home. If you qualify, you can receive a $1,500 non-refundable tax credit.
Home Buyers’ Plan (HBP)
Under the Home Buyers’ Plan, you can withdraw up to $60,000 tax-free from your Registered Retirement Savings Plan (RRSP) to buy or build your first home. The funds must be paid back within 15 years.
First Home Savings Account (FHSA)
The First Home Savings Account is designed to help young Canadians save money to buy a home. The tax-free and tax-deductible account allows you to save up to $40,000 to purchase your first house.
GST/HST New Housing Rebate
The GST/HST New Housing Rebate allows buyers to cover some of the GST/HST paid on a newly constructed or substantially renovated home. The amount you may be entitled to depends on your province.
Final Thoughts
With soaring home prices and persistent high interest rates, $1 million mortgages in Canada are becoming increasingly common. Before taking out a mortgage of this size, crunch the numbers to see how much this loan will cost you every month, and budget accordingly.
