How much you need for a down payment
Minimum down payment
A down payment is the amount of money that you put towards the purchase of a home. The down payment is deducted from the purchase price of your home. Your mortgage loan will cover the rest of the price of the home.
The minimum amount you'll need for your down payment depends on the purchase price of the home you'd like to buy.
|Purchase price of your home||Minimum amount of down payment|
|$500,000 or less||
|$500,000 to $999,999||
|$1 million or more||
If you're self-employed or have a poor credit history, you may be required to provide a larger down payment.
Normally, the minimum down payment must come from your own funds. It's better to save for a down payment and minimize your debts.
Example: How to calculate your minimum down payment
If the purchase price of your home is $500,000 or less
Suppose the purchase price of your home is $400,000. You’ll need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5%, for a total of $20,000.
If the purchase price of your home is more than $500,000
Suppose the purchase price of your home is $600,000. Your minimum down payment will be 5% on the first $500,000, for a total of $25,000. On the remaining $100,000, your minimum down payment will be 10%, for a total of $10,000. Add both totals together and your minimum down payment would be $35,000.
Home Buyers’ Plan (HBP)
To help you come up with a down payment, you may be eligible for the Home Buyers’ Plan (HBP). The Home Buyers' Plan allows you to withdraw up to $35,000, tax-free, from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. You have up to 15 years to repay the amounts you withdrew.
Before you sign up for the Home Buyers' Plan, consider:
- if you'll be able to make the repayments
- will withdrawing funds impact your retirement savings
Keep in mind:
- Not making the repayments could end up costing you a lot of money in income tax
- Even though you'll eventually repay the funds, you may still lose out on any growth while the funds are withdrawn
First-Time Home Buyer Incentive
If you’re buying your first home, you may be eligible for a shared equity mortgage with the Government of Canada. A shared equity mortgage is one where the government offers you financing without interest to help reduce your monthly mortgage payment without increasing your down payment.
Through the First-Time Home Buyer Incentive, the Government of Canada offers to a first-time home buyer:
- 5% of the purchase price of an existing home
- 5% or 10% of the purchase price of a newly constructed home
You need to repay the incentive after 25 years, or when you sell the property. You can also repay it at any time without a pre-payment penalty.
The repayment is based on the property’s fair market value at the time of repayment.
Mortgage loan insurance
Mortgage loan insurance protects the mortgage lender in case you’re not able to make your mortgage payments. It doesn't protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.
If your down payment is less than 20% of the price of your home, you’ll need to purchase mortgage loan insurance.
If you’re self-employed or have a poor credit history, you may also be required to get mortgage loan insurance, even if you have a 20% down payment.
Mortgage loan insurance isn't available, if:
- the purchase price of the home is $1 million or more
- the loan does not meet the mortgage insurance company’s standards
Your lender will coordinate getting mortgage loan insurance on your behalf if you need it.
Cost of mortgage loan insurance
A premium is a fee you pay to get mortgage loan insurance.
Mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of your mortgage. Your premium will depend on the amount of your down payment. The bigger your down payment, the less you’ll pay in mortgage loan insurance premiums.
Find premiums based on the amount of your mortgage loan:
To pay your premium, you can either add them to your mortgage loan or pay them with a lump sum up front. If you add your premium to your mortgage loan, you'll be paying interest on your premium at the same interest rate you're paying for your mortgage.
Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Provincial taxes on premiums can’t be added to your mortgage loan. You must pay these taxes when your lender funds your mortgage.
Example: How mortgage loan insurance premiums are calculated
Suppose you want to buy a home for $400,000. You have a down payment of $56,000, which is 14% of the purchase price. Because your down payment is less than 20%, you’ll need to get mortgage loan insurance.
Based on the size of your down payment, your premium will be 3.10% of your loan amount.
To calculate your mortgage loan insurance premium:
- Take the price of your home and subtract your down payment ($400,000 - $56,000 = $344,000)
- Take the amount of your mortgage and multiply by the insurance premium ($344,000 x 3.10% = $10,664)
- Your mortgage loan insurance premium will be $10,664
If you add the premium to your loan ($344,000 + $10,664 = $354,664), your mortgage loan would now be $354,664. You’ll now have to pay more interest charges because the amount of your mortgage has increased.
Let's assume you plan to pay off this mortgage over 25 years with a 4% interest rate. Compared to someone with a 20% down payment on the same home, you’ll pay an extra $20,038 in interest on your mortgage loan insurance premium.
In total, you’ll pay $30,702 in mortgage loan insurance.
How the size of a down payment affects the total cost of a mortgage
Save as much as you can for your down payment. The bigger the down payment, the smaller the mortgage, which can save you thousands of dollars in interest charges.
Example: How the size of a down payment affects the cost of a mortgage
You'd like to purchase a home that costs $400,000.
Assume the following:
- interest rate is 4%
- amortization period is 25 years
- payment frequency is monthly
- mortgage loan insurance premiums have been added to the mortgage loan
|Down payment||Down payment amount||Mortgage loan
||Mortgage loan insurance premium||Mortgage loan
(includes mortgage loan insurance)
|Total cost of your home
(includes mortgage loan, mortgage loan insurance, interest and down payment)
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