Understanding Mortgage Down Payments in Canada

If you’re getting ready to purchase a home in Canada, you probably have some questions about the mortgage down payment process. There’s a lot to consider before you make any decisions, like how much to put on a down payment and what insurance you will need. 

We created this guide to help you understand the basics of mortgage down payments in Canada and some of the questions you’re probably considering. 

What exactly is a down payment?

A down payment is the cash contribution that you provide up front to complete the purchase of your home. Down payments typically fall between 5% and 20% of the home’s value, depending on the price of the home. 

How is the minimum down payment calculated?

The minimum down payment in Canada varies depending on the value of the home. A home worth $500,000 or less usually has a minimum down payment of 5%, whereas a home worth $1 million or more typically requires a 20% down payment. The Government of Canada website explains this in more detail. 

What is mortgage default insurance and how do I qualify?

Mortgage default insurance covers your lender in case you can’t pay off your mortgage. The cost of the mortgage insurance policy is usually paid by you or the lender. Check with your mortgage broker about whether or not you qualify for mortgage default insurance and if you’re responsible for paying it. 

Homes worth more than $1 million, not owner-occupied, or with an amortization period of more than 25 years, are not insurable by mortgage default insurance. In these cases, the interest rate of the mortgage will be higher. 

What can I use for my down payment?

You’ve probably been saving for a while if you’re thinking about a down payment. You might also want to consider additional options like personal savings, gifts and loans from family and friends, home equity, and down payment assistance programs. 

There are a few options for incentives and assistance programs in Canada, including the Home Buyers’ Plan in Canada, which allows you to use $35,000 from your RRSP as part of your down payment. Ask your mortgage broker about other options for saving money on your down payment. 

Do I have to put 20% down?

You don’t necessarily have to put 20% down on a home, even though that may be what you’ve heard. However, if you don’t put down 20%, you will have to remember things like increased interest rates and mortgage default insurance, which will come with a lower down payment. 

How big should my down payment be?

There are pros and cons to making a larger down payment. Making a larger down payment up front results in smaller mortgage payments over time. This also means smaller interest charges, so you’ll spend less on interest over time. You’re also likely to get better payment terms with a larger down payment.

However, you might risk stretching your savings too thin with a large down payment, and be left unable to cover an emergency expense after purchasing your new home. It’s important to take these things into consideration when calculating how much you can put down. 

Now that you understand the basics of a mortgage down payment, we hope you feel more prepared as you consider purchasing a home. 

If you’re confused, don’t worry. Book a call with Your Mortgage Guide and we’ll answer all your questions.