How to Save Up for a Down Payment

How to Save Up for a Down Payment

Written by Caitlin Wood
Last Updated December 9, 2021

How to Get Started

To get started, it is important to figure out how much you can afford to borrow given budgetary constraints. A mortgage calculator is a useful tool to determine this. Keep in mind that monthly mortgage payments should not exceed 30% of your monthly income. Once you have a value for the mortgage principal in mind, it will be up to you to determine the percentage of down payment and the length of the term based on what is feasible for you. By example, assuming an average first-time buyer purchase price of $300,000 and a minimum 5% down payment, this means you would need to save at least $15,000 plus closing costs. Over a 4 or 5 year period, this means saving roughly $3000 to $3750 per year, which translate to about $250 to $310 a month. This can seem quite daunting, but there are many ways to make saving money easier.

Bigger Down Payment, Smaller Monthly Payments

When considering a mortgage, it is without a doubt that a larger down payment will yield many benefits. Monthly principal and interest payments will be reduced, as well as overall interest paid in the amortization period. A conventional mortgage with 20% down payment will even save the purchaser from having to pay more for default insurance, which can be 1.00% to 3.50% of the principal amount. For those unable to put down 20%, there is always the option of a high-ratio mortgage with a down payment as little as 5%, but this will require the purchaser to allocate more of their monthly budget to mortgage payments.

Budgeting Counts

Budgeting will be the biggest factor in saving up for a down payment. First and foremost, increasing monthly income is a good place to start. It is not unreasonable to work multiple jobs if it is feasible for you. The benefit of more work is twofold: income increases proportionally while expenses may decrease due to there being less free time to spend money. Selling unused items is another way to increase income.

When it comes to expenses, seemingly small daily transactions can accumulate into large monthly expenses that are very easy to look over. A daily cup of coffee can translate to $45 to $60 per month. A workday lunch out can cost $100 to $200 per month. Commuting by mass transit can cut out a significant amount in gas and using the car less may translate into less repair costs over time. Taking the effort to buy groceries on special, and buying in bulk can also mean greater savings. If you are renting an apartment, it may be wise to move to a cheaper apartment or to take in a roommate which will immediately cut rental costs in half. Applying for tax refunds and taking advantages of any types of bonuses available to you may lead to even more savings.

There are numerous ways to increase savings, and the best way to do so is to increase income and to keep track of as many expenses as possible. From there, it is up to you to determine where these expenses can be reduced.

Buffing Up Your Savings

Now that you have increased your savings flow, there are many ways to bolster up those savings. You can earn interest on your savings by putting your money into a high-yield savings account or a secure investment such as government savings bonds. As a first time home buyer, you can also take advantage of many subsidies and incentives, such as the First Time Home Buyer’s Tax Credit (HBTC), calculated as the lowest personal income tax rate for the year multiplied by $5000. At the 2009 rate of 15%, this means a $750 credit. The Home Buyer’s Plan (HBP) allows you to take up to $25,000 from your RRSP per year, to be repaid within 15 years.

There are also many provincial incentive programs, most of which offer subsidies for retrofitting existing or new homes with energy efficient upgrades. There are even subsidies at the municipal level as well.

Remember, with the right plan and making use of all the benefits available to you, saving up for that down payment can be much simpler than it seems. While self-discipline is a must, owning your own property is a worthwhile reward.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

50 Free Trades Offer

50 Free Trades Offer
Ends August 31st, 2022

Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 1%² cashback guaranteed.

View Offer
Build Credit With Refresh

Build Credit With Refresh

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month

With KOHO’s prepaid card you can build a better credit score for just $7/month.

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

addy ⎯ Making Real Estate Accessible To All Canadians

addy ⎯ Making Real Estate Accessible To All Canadians

Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.

Read Post
Find The Best Rate
In Your Region
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.