Down Payment

A down payment is the sum of money you pay upfront when purchasing a home. It can be shown as a percentage of your total home price, calculated by taking your down payment and dividing it by the dollar amount of your home price.

What is the minimum down payment in Canada?

On homes less than $500,000, 5% is the minimum down payment in Canada.

As of February 15, 2016, the minimum down payment on homes between $500,000 and $1 million is 5% on the first $500,000 and 10% for the portion over $500,000.

Finally, homes over $1 million require a minimum down payment of 20%.

Example: $700,000 home

First $500,000 x 5% down payment = $25,000

Portion over $500K: $200,000 x 10% down payment = $20,000

Total down payment: $25,000 + $20,000 = $45,000

Zoo Tip!

Home purchases over $1 million require a down payment of at least 20%. You also have to put 20% down if you’re buying an investment property and plan to rent it out, (even if it’s just on AirBnB!). However, if you’re buying a second property for personal use, like a cottage or a downtown work condo, the minimum down payment is still based on the home price.

How your down payment affects mortgage default insurance

Mortgage default insurance (or CMHC Insurance) is a mandatory insurance on home purchases with down payments of less than 20%, protecting the lender in case the borrower fails to pay their mortgage payments and defaults on their mortgage.

For more information check out our page on CMHC Insurance.

How your down payment affects your mortgage

1. Your down payment limits the home price you can afford

If you’re purchasing a home under $500,000, the minimum down payment in Canada is 5%, meaning your maximum mortgage affordability is 20x your down payment. Of course in addition to your down payment your lender will also look at your ability to make your mortgage payment each month.

Example: Down payment of $12,000

Total mortgage amount: $12,000 x 20 = $240,000

If your home is $500,000 to $1 million, the minimum down payment is 5% for the portion under $500,000, and 10% for the portion over $500,000.

Example: Down payment of $50,000

First $25,000 x 20 = $500,000

Remaining $25,000 x 10 = $250,000

Total mortgage amount: $500,000 + $250,000 = $750,000

And if your home is over $1 million, the minimum down payment is 20%, meaning your maximum affordability is 5x your down payment.

Example: Down payment of $300,000

Total mortgage amount: $300,000 x 5 = $1,500,000

In addition to your down payment, you will also need to pay land transfer tax, legal fees, and other closing costs, so it would be wise not to use 100% of your savings for your down payment.

2. Your monthly payments decrease the larger your down payment

It may seem straight-forward, but the larger your down payment, the smaller your mortgage, meaning your monthly payments and interest will be reduced.

Where do you get your down payment from?

There are many common sources of funds for down payments:

  • Personal savings
  • Proceeds from selling stocks, bonds, or even personal property
  • Gifts from immediate family

If you want more information on how to save for your down payment, check out our page on saving and sourcing for a down payment.

Zoo Tip!

If you’re a first-time home buyer, you can use the RRSP Home Buyers’ Plan (HBP) to withdraw from your RRSP without a withdrawal penalty when used toward your down payment. First-time homebuyers can withdraw up to $25,000 tax-free from their RRSPs, as long as the money is going toward their home purchase. Note that the money has to be in your RRSP for at least 90 days before you can withdraw it, and you must make the withdrawal within 30 days of taking the title of your home. You then have 17 years to pay back the amount you took, with the first repayment due 2 years after your make your withdrawal.

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