5.2.2 Down payment

From: Financial Consumer Agency of Canada

If you decide to buy a home using a mortgage, you need a down payment. The down payment is the amount of money that you pay up front toward the price of your home (your mortgage loan covers the rest). In Canada, the minimum down payment is 5% for properties up to $500,000, but some lenders may require more. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion.

For more information, read How much you need for a down payment by the Financial Consumer Agency of Canada

Example

Muriel wants to buy a small house near the packing plant where she works. It’s selling for $250,000, and she has savings of $35,000. The minimum down payment would be $12,500 and she has a good credit history, so she knows she should be eligible for a mortgage. If she puts the whole amount of her savings down, she’ll have a mortgage of $215,000, but no money left for extra costs. However, she decides to keep $15,000 of her savings to cover the costs of buying the home and moving, so she plans to ask for a mortgage of $230,000.

House selling price: $250,000

Muriel's savings: $35,000

Minimum down payment: $12,500

Option 1: $35,000 down payment, $215,000 mortgage

Option 2 (Muriel's choice): $20,000 down payment, $230,000 mortgage, $15,000 set aside for other costs

Muriel thinks about how much of her savings to put into the down payment on a home.

Tip 

The larger the down payment you pay, the less interest you will pay over the life of the mortgage. Also, if your down payment is 20 percent or more, you won’t have to pay for mortgage default insurance (insurance to protect the lender in case you can’t make the payments), which can be a significant additional cost.

When you plan a deposit for your mortgage, keep in mind the possibility of Pre-approval and the Home Buyers Plan.

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