Is there a minimum down payment in Canada?

Yes, there is a minimum down payment in Canada. It depends on the purchase price of the home:

• For a purchase price of under $500,000, the minimum down payment is 5%
• For a purchase price of between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000 (or $25,000), plus 10% of the amount over $500,000.
• If the house was $650,000, the down payment would be $25,000 + 10% of the remaining $150,000 (or $15,000). The minimum down payment for this purchase price would be $40,000.
• If the purchase price is $1,000,000 or more, the minimum down payment is 20%.

When purchasing a home with a down payment of less than 20% (called high-ratio mortgages), you’re also required to take out mortgage default insurance, also known as CMHC insurance. This insurance protects the lender in case you default on your mortgage.

A conventional mortgage is one where the down payment is equal to or exceeds 20%. For conventional mortgages, no mortgage default insurance is required, although it can be purchased.

Your down paymentAffects Three Things

The size of your down payment can affect:

• The home price you can afford
• The size of your mortgage and monthly payment
• The amount of CMHC insurance you pay

1. Your affordability

The minimum down payment anywhere in Canada is 5%. This is the benchmark we use to determine the maximum price you can afford. You can estimate the most you can afford with a simple calculation if your down payment is $25,000 or under.

With a down payment of $25,000 or less, your maximum affordability is roughly

Your down payment ÷ 5%

because 5% is the minimum down payment. With a down payment of $25,000, the maximum rough estimate is $500,000 ($25,000÷ 5%).

Keep in mind that when we calculate the most you can afford using our affordability calculator, we take into account many more aspects of your finances, such as your income and your current debts. Also, it may not be a good idea to stretch your budget to the maximum when buying a home.

2. Your monthly payment

The more you spend now, the less you have to spend later. Not only will a large down payment bring down the total mortgage required significantly, it will also reduce the monthly payments required (when spread out over the same amortization period). You’ll also save thousands of dollars in interest!

3. Your CMHC insurance premium

Because CMHC insurance is calculated based on your total mortgage amount, a larger down payment will reduce the premium. To learn more about CMHC insurance, please read this blog post.

How to Fund a Down Payment

The traditional way of securing a large down payment is to save up money from every paycheque. Unfortunately, as housing prices continue to rise faster than the rate of inflation (and also the increase in wages), saving up for a down payment is becoming increasingly difficult, if not outright impossible.  But have no fear! There are still ways to get a down payment even if you don’t have a lot of cash on hand.

The RRSP Home Buyers’ Plan (HBP) allows people to withdraw up to $25,000 per person (up to a max of $50,000) to be used towards a down payment, if you’re a first-time homebuyer. This allows people who haven’t had the opportunity to build equity (as they weren’t born yet) the chance to use some of their retirement savings now. However, this is not free money – you must pay the total amount you withdrew within 15 years of purchasing your first home. You must also consider the opportunity cost of withdrawing from your RRSP, which likely gains more interest than your typical savings account. On the other hand, the rising housing prices could mean that you earn more through the appreciation of your property than you would have in an RRSP.

There are also gifts from immediate and non-immediate family members, which some may be lucky enough to have. You can also take out a loan to increase your down payment – the reduced internet rates and CMHC premiums could be worth the added interest on a new loan.

Loan-to-value Ratio

The loan-to-value ratio is the term used in the finance industry to talk about the relationship between the home value and the mortgage value. As you are required to always have a down payment, the loan-to-value ratio (always shown as a percentage) will never be more than 95%. A 95% LTV is another way of saying that you have a down payment of 5%.

For a $500,000 home, with the minimum 5% down payment, the total mortgage would be $475,000. The loan-to-value ratio is $475,000 ÷ $500,000, or 0.95, expressed as 95%.