# How much you need for a down payment

## What is a minimum down payment

A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home.

The minimum amount you need for your down payment depends on the purchase price of the home.

If your down payment is less than 20% of the price of your home, you must purchase mortgage loan insurance.

Table 1: The minimum down payment based on the purchase price of your home
Purchase price of your home Minimum amount of down payment
\$500,000 or less
• 5% of the purchase price
\$500,000 to \$999,999
• 5% of the first \$500,000 of the purchase price
• 10% for the portion of the purchase price above \$500,000
\$1 million or more
• 20% of the purchase price

If you’re self-employed or have a poor credit history, your lender may require 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

The calculation of the minimum down payment depends on the purchase price of the home.

#### If the purchase price of your home is \$500,000 or less

Suppose the purchase price of your home is \$400,000. You need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5% is equal to \$20,000.

#### If the purchase price of your home is more than \$500,000

Suppose the purchase price of your home is \$600,000. You can calculate your minimum down payment by adding 2 amounts. The first amount is 5% of the first \$500,000, which is equal to \$25,000. The second amount is 10% of the remaining balance of \$100,000, which is equal to \$10,000. Add both amounts together which gives you total of \$35,000.

## What is mortgage loan insurance

Mortgage loan insurance protects the mortgage lender in case you can’t 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 must buy mortgage loan insurance.

Your lender may require that you get mortgage loan insurance, even if you have a 20% down payment. That’s usually the case if you’re self-employed or have a poor credit history.

Mortgage loan insurance isn’t available if:

• the purchase price of the home is \$1 million or more
• the loan doesn’t meet the mortgage insurance company’s standards

Your lender coordinates getting mortgage loan insurance on your behalf if you need it.

### Cost of mortgage loan insurance

The fee you pay for mortgage loan insurance is called a premium. Mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of your mortgage. Your premium depends on the amount of your down payment. The bigger your down payment, the less you pay in mortgage loan insurance premiums.

Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Your lender can’t add the provincial tax on premiums to your mortgage. You must pay this tax when you get your mortgage.

## How the down payment affects the total cost of your 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

Suppose you buy a home that costs \$400,000.

Assume the following:

• interest rate is 4%
• amortization period is 25 years
• payment frequency is monthly
Table 2: Effect of the size of a down payment on the total cost of a mortgage
Down payment Down payment amount Mortgage

(includes all columns)
5% \$20,000 \$380,000 \$15,200 \$395,200 \$643,649
10% \$40,000 \$360,000 \$11,160 \$371,160 \$625,712
20% \$80,000 \$320,000 Not required \$320,000 \$584,979

## Home buying programs, plans and incentives

Before you buy a home, consider the programs, plans and incentives available to you.

To help you come up with a down payment, you may be eligible for the HBP. The HBP allows you to withdraw up to \$35,000, tax-free, from your Registered Retirement Savings Plan (RRSP). You must use this amount to buy or build a qualifying home. You have up to 15 years to repay the amounts you withdraw.

• if you can make the repayments
• if withdrawing funds impacts your retirement savings.

Keep in mind:

• not making the repayments could end up costing you a lot of money in income tax
• you may lose out on any growth in your RRSP while the funds are withdrawn.

Find out if you’re eligible and how to participate in the HBP.

First-time home buyers may be eligible for a shared equity mortgage with the Government of Canada. With a shared equity mortgage, the government offers you financing without interest. This helps reduce your monthly mortgage payment without increasing your down payment.

• 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 prepayment penalty.

The property’s fair market value at the time of repayment will determine the repayment amount.

Find out if you’re eligible for the First-Time Home Buyer Incentive.