Between 2000 and 2019, median income in Canada rose from $21,600 to $37,719, while the median cost of a home increased from $150,000 to $748,439 from 2000 to 2021. The impact of the spike in housing is most significant in Canada’s major cities such as Toronto and Vancouver, where the average home cost is closer to $1,000,000.
With home prices inflating at a much higher rate than income, many Canadians will likely struggle to become homeowners. In this article, we delve into what it takes to afford a million-dollar home in Canada, from interest rates to income requirements, so you can start planning today.
How Much Income Do You Need To Qualify For A Million Dollar House?
Every mortgage lender in Canada has specific requirements to provide a million-dollar mortgage, and for good reason. Such a large sum of loaned money naturally has higher payments due to the sheer size of the loan. As such, the borrower’s income level is a major consideration as it lets the lender know if you can feasibly repay the debt.
While every mortgage lender will have different requirements, you can expect your mortgage lender to have an income level requirement of $150,000 – $160,000. Because of these standards, many $1,000,000 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.
Other $1,000,000 Mortgage Requirements
Banks also consider the debt-to-income ratio, meaning they check your earnings in relation to your current debts to make sure that you have enough income to pay the mortgage bill and your other debts.
Similarly, to get a loan of $1,000,000, you can expect to put down at least $200,000 (20% of the total) as a downpayment. Banks are seldom willing to allow a mortgage of this value to fall into a high-risk category, where a smaller downpayment gets issued.
What Would My Mortgage Payments Be For A $1,000,000 House?
To get a picture of what you would pay on a million-dollar mortgage, it’s important to consider the interest rate and payment frequency. Both these factors can influence your mortgage payments.
Mortgages with fixed interest rates tend to be slightly higher, though they also have less risk than a variable-rate mortgage. Generally, mortgages with a shorter amortization period will have lower rates, but higher payments.
The following table represents the approximate payment amounts for a $1,000,000 mortgage with a down payment of $200,000 with a term of five years. It shows what you can expect to pay for bi-weekly or monthly payments with two common interest rates: 2.5% and 3.0%.
| Amortization Period | 2.5% interest, biweekly payment | 2.5% interest, monthly payment | 3.0% interest, biweekly payment | 3.0% interest, monthly payment |
| 10-years | $3,477 | $7,537 | $3,560 | $7,718 |
| 15-years | $2,459 | $5,329 | $2,545 | $5,518 |
| 25-years | $1,653 | $3,584 | $1,746 | $3,786 |
How Much Interest Would You Pay On A $1,000,000 Mortgage?
The amount of interest you pay on a $1,000,000 house depends on the interest rate, payment frequency and term length. In general, the longer you have a mortgage, the lower your monthly payments, but the more you pay in interest over time.
Assuming you place a 20% downpayment on a $1,000,000 house and make monthly payments, the following shows what you can expect to pay in total interest before you own the home free and clear.
| Interest rate | 15-Year Amortization: Total Interest Paid | 25-Year Amortization: Total Interest Paid |
| 1.5% | $93,568 | $159,321 |
| 2.0% | $126,103 | $216,283 |
| 2.5% | $159,301 | $275,119 |
| 3.0% | $193,151 | $335,789 |
| 3.5% | $227,646 | $398,249 |
How Much Of A Down Payment Do You Need For A Million Dollar Home?
According to the Canada Mortgage Housing Corporation (CMHC), mortgage loan insurance is not available for houses worth $1,000,000 or more. As such, when a home is worth $1,000,000 or more, the requisite down payment is 20% of the home value ($200,000). 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
- Less than $500,000 – 5%
- $500,000 – less than $1,000,000 – Properties worth more than $500,000 require a 5% down payment on the first $500,000; and at least 10% of the remainder.
- More than $1,000,000 – 20%
Can You Pay 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. There are three companies in Canada that can offer this insurance, The Canada Mortgage and Housing Corporation (CMHC), Genworth Financial, and Canada Guaranty
Million-dollar homes differ significantly because mortgage default insurance is not available. Any consumer in Canada looking to purchase a house that is worth one million or more must provide at least a 20% down payment.
Additional Reading
Can You Qualify For The First-Time Home Buyer Incentive With A $1,000,000 Mortgage?
If you’re a first-time homebuyer, Canada has many incentives to assist you in entering the residential real estate market. The First-Time Home Buyer Incentive is a program that offers 5%-10% of the home’s down payment.
To qualify for the First-Time Home Buyer program, participants’ yearly income cannot exceed $120,000 or $150,000 in the Toronto, Vancouver, or Victoria Census Metropolitan Areas. The program only accepts a total borrowing amount of four times the qualifying yearly earnings or 4.5 times in Toronto, Vancouver, and Victoria. That means the incentive does not apply to any property greater than $480,000 (or $675,000 if you reside in Toronto, Vancouver or Victoria). Those purchasing a million-dollar home, even if the purchase is split between multiple parties, are not accommodated in this program.
Final Notes
The housing prices continue on an upward trend; and, even if they cool, the million-dollar mortgage is likely to remain. Some larger families choose to cohabitate, where each member co-signs the mortgage and contributes to a downpayment. In other situations, the source of down payments comes from a previous home sale or an inheritance. The average income these mortgages require is more than double the national median salary. Unless you already own assets with a comparable value, getting approval for a million-dollar home can be a challenge.
Those who can afford this type of mortgage can consider paying a larger down payment to reduce the overall interest paid on the property. Finally, don’t forget to consider factors such as property tax and closing costs when looking to purchase a million-dollar home.
