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Mortgage Down Payment 101

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How to Calculate Your Mortgage Down Payment

Your mortgage down payment is the funds you pay upfront when buying a home. Normally expressed as a percentage, the down payment is computed as the dollar value divided by the home price.

What’s the Minimum Down Payment do I need?

The answer to this question is yes: Canada has a minimum down payment, which is contingent on the cost of the house for sale.

  • Minimum down payment for a house costing under $500,000 is 5 percent
  • Minimum down payment for a house costing between $500,000 and $999,999 is 5 percent on the first $500,000, and 10 percent on the excess
  • Minimum down payment for a house costing $1,000,000 or higher is 20 percent

Canada Mortgage and Housing Corporation (CHMC) offers mortgage default insurance, which safeguards lenders in case the borrower does not service the loan as agreed. A high-ratio mortgage is one that has a down payment of 20 percent, and CHMC insurance is required for all such housing loans. Conversely, a conventional mortgage requires a down payment of 20 percent or higher.

Thirty percent of homebuyers fall within the specifics of the conventional mortgage, as stated in a recent homebuyers report produced by TD Canada Trust. Banks do not require default insurance for conventional mortgages.

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Why is the Down Payment Amount Important?

The down payment you make when your mortgage is approved influences three important factors as long as the loan remains in force:

1. How Much House You Can Buy

The 5 percent yardstick can be used to establish how much house you can afford since this is the minimum down payment in Canada. Without taking your current debt levels and income into account, you can use the 5 percent benchmark to gauge the maximum price you can pay for a home. The computation is contingent on whether your down payment is above or below $25,000, since the minimum is on a sliding scale.

You can calculate maximum home price as down payment divided by 5 percent if you deposit $25,000 or less. 

Since affordability also depends on your debt levels and income, you should also take a look at our mortgage affordability calculator to get a more comprehensive breakdown.


2. Your Mortgage Size and Your Monthly Payment are Impacted by Your Down Payment

The total amount you owe on your mortgage will be reduced if you make a larger down payment, and naturally, the interest and monthly payments you make on the loan will decrease as well.


3. Your Down Payment also Impacts your CMHC Insurance Premium

Computed as a percentage of the amount of your mortgage, your CMHC insurance premium is reduced as your down payment increases.


How to Fund Your Down Payment

Traditional sources of funding for a down payment include liquidating stocks, bonds, and other investments, saving a predetermined amount from each paycheque, or asking close family members for help. The Registered Retirement Savings Plan’s Home Buyers’ Plan is another great option, which allows first-time homebuyers to withdraw as much as $25,000 tax-free to fund the purchase.

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