How Much Is A Down Payment On A House?

A down payment is the money you initially put towards the purchase of your home. It’s the percentage of the purchase price you don’t finance. Lenders require homebuyers to make a down payment for most mortgages, and the minimum downpayment amount in Canada is 5%, but it can be higher, depending on other factors.

Essentially, a down payment shows lenders your commitment to buying the property and also acts as your first bit of home equity. Still, since the lender is investing more money in the property than you are, they’ll order an appraisal to get an independent, professional opinion on the property’s value. They’ll also check your credit score, income and debt to see if you’ll be able to pay the mortgage.The size of your down payment also determines how much you’ll pay for mortgage insurance.

Your lender deducts the down payment from the purchase price of your home and your mortgage covers the rest. For example, if your down payment was 20%, the remaining 80% of your home’s value would be your mortgage.

However, the minimum amount required for your down payment depends on the purchase price of the home:

However, things get complicated by mortgage insurance, which is needed in Canada for down payments of less than 20%.

Mortgage loan insurance (or mortgage default insurance) exists to protect the lender in the event that you can’t pay your mortgage. It doesn’t protect the borrower.

In Canada, if a down payment is less than 20% of the price of the home, the home buyer must have mortgage loan insurance. Even if you have a 20% down payment, your lender may require you to have mortgage loan insurance, typically if you’re self-employed or have a poor credit history. If you need it, your lender will be in charge of getting mortgage loan insurance on your behalf.

In some cases, mortgage insurance isn’t available—like if the price of the home is $1 million or more or the loan doesn’t meet the mortgage insurance company’s standards.

How Much Does Mortgage Loan Insurance Cost?

The fee for mortgage loan insurance (called premiums) range from 0.6% to 4.50% of your mortgage. This premium depends on your down payment. The bigger the down payment you make, the less you’ll pay in mortgage loan insurance premiums.

You can either add your premium to your mortgage or pay it upfront in a lump sum. However, if you choose to add it to your mortgage, you’ll also pay interest on your premium at the same rate that applies to your mortgage.

Also, you may have to pay tax on your premiums, too. Ontario, Manitoba and Quebec apply provincial sales tax to these premiums. And these taxes can’t be added to your mortgage; you must pay this tax when you get your mortgage.

Here are two ways to calculate your down payment. The first is based on the dollar amount you’ve saved. The second is based on the minimum percentage you need to put down.

Formula 1:

Amount saved / purchase price = Percentage down

Let’s say you have $10,000 saved and you’re looking at a $200,000 home. Your down payment is $10,000 / $200,000 = 0.05 or 5%.

Formula 2:

Percentage down x purchase price = Amount to save

Let’s say you want to put at least 10% down and the median home in your area costs $300,000. You need to save at least 0.10 x $300,000 or $30,000.

In the current housing market, anyone can have trouble saving up 20% of a home’s purchase price. For young people, low-wage workers, people with kids and people with high student debt, this can be especially difficult. Fortunately, with the wide range of incentives that can help you save this up.

Home Buyers’ Plan (HBP)

The HBP allows you to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP), tax-free. In order to access this, you must use this amount to buy or build a qualifying home or for a related person with a disability. However, you have to repay the money to your RRSP within 15 years. If you fail to do so, you can face penalties.

First-Time Home Buyer Incentive

With the this incentive, the government will provide eligible first-time buyers with 5% of the purchase price of a home (or 5% or 10% of the purchase price of a newly constructed home) to put toward a downpayment. However, you’ll need to repay the government after 25 years or when you sell the home. You can also repay anytime before that without penalty. The deadline for new applications and resubmissions to this program is now March 21, 2024. No new approvals will be granted after March 31, 2024. After this date, the program will be discontinued. Read our Feds Scrap First-Time Home Buyer Incentive Program article to learn more.

Learn more: How the First-Time Home Buyer Incentive Can Help You Buy a House

First Home Savings Account (FHSA)

The FHSA combines the features of an RRSP and a TFSA to allow first-time homebuyers to save up to $40,000 for their downpayment with considerable tax benefits. Contributions to the account are tax-deductible (like a RRSP) and qualifying withdrawals to buy a house would be non-taxable (like a TFSA). Unlike the Home Buyers’ Plan, the funds do not need to be repaid to the account.

How much to put down is a personal decision. Let’s say you qualify for a loan with a minimum down payment of 5%. What are some reasons why you might want to make a larger down payment, somewhere between 5% and 20%?

• Avoid mortgage loan insurance.
• Lower your monthly mortgage payment.
• Pay less mortgage interest in the long run.

However, making a larger down payment requires trade-offs:

• Waiting longer to buy a home.
• Paying rent in the meantime.
• Having less cash to fix up your new home.
• Having a smaller emergency fund.

There are several ways to save for a down payment:

• Create a budget. If you don’t already have a budget, you can make one by tracking your monthly income and expenses. This will help you see if there’s any wiggle room to put more money toward a down payment.
• Trim your expenses. After you have a budget set up, look for any areas where you can cut back on spending—for example, cancelling unused subscriptions or cooking at home instead of going out. You can then put the money you save toward your savings goal.
• Open a dedicated savings account. Having an account dedicated specifically to your down payment goal can help you more easily keep track of how much you’ve saved and how much more you’ll need. If you contribute up to $35,000 of your down payment money to your RRSP, you can reduce your taxable income and use the Home Buyers’ Plan to withdraw. You can also receive tax benefits by using the tax-free First Home Savings Account, too. If you opt for a regular savings account, consider using an account that will earn you more interest than a regular savings account, such as a high-interest savings account.
• Pay off debts. High-interest debts—such as credit card debt—can make it hard to come up with extra money for a down payment. If you can wait on a down payment, it could be a good idea to put any extra cash toward paying off debts so you can save money on interest and have more financial flexibility. Repaying debts can also reduce your debt-to-income (DTI) ratio, which helps you qualify for a mortgage.
• Pause other savings goals. While it isn’t ideal, you could temporarily pause other financial goals to focus on saving for a down payment. For example, you could put a hold on regular savings to put that money toward a down payment. Be sure not to dip into your other savings accounts—such as emergency funds or retirement accounts—so you don’t find yourself in a financial bind later on.