MORTGAGE DOWN PAYMENT
is the amount of money you pay upfront when purchasing a home.
A Mortgage Down Payment is the amount of money you pay upfront when purchasing a home. A Down Payment, typically expressed as a percentage, is calculated as the dollar value of the down payment divided by the home price.
What is the Minimum Down Payment required in Canada?
The minimum down payment in Canada depends on the purchase price of the home:
NOTE
- 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.
Mortgage Down Payment Sources
There are a number of ways you can source funds for a mortgage down payment.
NOTE
when you employ Non-Traditional Sources for your down payment, you will incur a CMHC insurance surcharge of 0.15% for down payments of 5% or less.
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:
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
Cost of Mortgage Loan Insurance
The insurance premiums 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.
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.
Saving Money with a Larger Down Payment
It’s to your advantage to put down as much money as you can because interest costs for a smaller mortgage are lower-adding up to significant savings over the long run.
The table below shows how an average homeowner can save more than $25,000 in interest costs on a $100,000 home by making a down payment of 25% versus the minimum down payment of 5%.
| Down Payment % | Down Payment | Amount Mortgage Principal | Principal Total Interest Paid |
|---|---|---|---|
| 5% | $5,000 | $95,000 | $122,512 |
| 10% | $10000 | $90,000 | $116,063 |
| 25% | $25,000 | $75,000 | $96,717 |
Total interest paid assuming a constant interest rate of 8% repaid over a 25-year amortization period. The scenario does not include the default insurance premium.
NOTE
No matter the size of your down payment, be sure to reserve some funds to cover your home inspection, closing costs, moving and other potential expenses. Ask your real estate agent how much you might want to set aside.
