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Home Affordability

How to Budget for a Down Payment

Loans Canada by Loans Canada
July 18, 2022
in Affordability, Mortgages
Reading Time: 4 mins read
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A down payment is generally required when seeking a mortgage and can cost a hefty price depending on your home value. To help ensure you’ve got enough when you apply for a mortgage, you’ll need to start saving early on. 

Read on to find out how to budget for a down payment. 

What Is a Down Payment? 

Down payments refer to an upfront sum of money issued towards the purchase of a home. The exact amount depends on the price of the home, the type of mortgage, the lender, and the buyer’s financial and credit profile. 

How Much Does A Down Payment Cost? 

Down payment requirements in Canada are as follows: 

Home PriceMinimum Down Payment Required
Up to $500,000 5%
$500,000 – $999,999 5% on the first $500,000; 10% on the remainder
$1 million+ 20%

Should You Save for Mortgage Default Insurance as Well? 

If you make a down payment of less than 20% of the purchase price of the home, you’ll need to pay mortgage default insurance. We recommend taking the time to save up and consider all associated costs. 

How to Budget for a Down Payment

To budget for a down payment, there are certain actions you can take to help you keep more money in your pocket: 

Save and Invest Your Money 

High-Interest Savings Accounts – Rather than saving your money in a regular savings account, take advantage of a high-interest savings account. These accounts come with rates as high as 1.5% + and are typically offered by digital banks. 

  • Read: Buying a Home? Here Are 5 Ways to Save for Your Down Payment

TFSAs And ETFs – Tax-free savings accounts (TFSAs) are registered investment accounts that let you grow and withdraw your funds. Exchange-traded funds (ETFs) trade on stock exchanges and track a specific index. Similar to stocks, you can buy and sell with less risk and exposure.

Budget And Automate Savings 

● Establish A Budgeting Plan. Create a budget for your financial situation by cutting costs and setting aside an amount for your needs. 

● Set Up Automatic Savings. Have your bank accounts set up for automated savings so you don’t have to make the transfer yourself. 

Are There Government Programs to Help With Making a Down Payment?

Home accessibility is an issue in many Canadian cities. Luckily, the governments have developed various programs to help Canadians finance their dream home: 

● Home Buyers Plan (HBP). This tax-free program allows you to borrow up to $35,000 from your RRSP account for a down payment. 

● First-Time Buyer Tax Credit. This $5,000 non-refundable tax credit is designed to help you recover closing costs associated with buying a home. 

● First Time Homebuyer Incentive – Have 10% of your home costs covered by the government in a shared equity loan. 

● Tax Free First Home Savings Account – Combines features of RRSP and TFSA, allowing young Canadians to set aside every dollar they earn up to $40,000 and shorten the time it takes to afford a down payment. 

It’s never too early to start saving for a down payment. The more you can save, the less you need to borrow.

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Loans Canada

Loans Canada

Loans Canada is a financial technology and media company that connects Canadian consumers to financial service providers and educational resources. Loans Canada is one of the nation’s leading online destinations for information on loans, debt relief, credit building, and commercial financing. Their technology platform allows consumers to search for the best lenders and credit providers in Canada.

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