Mortgage Down Payment


A mortgage down payment is the amount of money you pay upfront when purchasing a home. A down payment, typically expressed as a percentage, is calculated as the dollar value of the down payment divided by the home price.

 


What is the Minimum Down Payment Required in Canada?

The minimum down payment in Canada depends on the purchase price of the home.

  • If the purchase price is less than $500,000, the minimum down payment is 5%;
  • If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000, and 10% of any amount over $500,000;
  • If the purchase price is $1,000,000 or more, the minimum down payment is 20%.
     

Mortgage defaul insurance commonly referred to as CMHC Insurance, protects the lender in the event the borrower defaults on the mortgage. It is required on all mortgages with down payments of less than 20%, which are known as high-ratio mortgages. A conventional mortgage, on the other hand, is one where the down payment is 20% or higher.

 

 

The Size of Your Down Payment Influences Three Things

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

 

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

 

Because the minimum down payment in Canada is 5%, this benchmark is used to determine your maximum affordability. Ignoring your income and debt levels, you can infer your maximum purchase price based on the size of your down payment. Because the minimum down payment is a sliding scale, the calculation depends on whether your down payment is more or less than $25,000.

 

If your down payment is $25,000 or less, your maximum home price would be:

 

down payment amount / 5%

i.e. is you have saved $25,000, the maximum home price you could afford would be $25,000/5% = $500,000

 

If your down payment is $25,001 or more, the calculation is a bit more complex. You can find your maximum purchase price using:

down payment amount - $25,000 / 10% +$500,000

i.e. is you have saved 40,000, the maximum home price you could afford would be $40,000 - $25,000 = $15,000 / 10% = $150,000 + $500,000 = $650,000

 

Naturally , as your affordability is also a function of your income and debt level, you should visit our mortgage affordability calculator.

 

2.  Your down payment shapes the size of your mortgage and monthly payment

 

A larger down payment reduces the size of your mortgage and therefore the monthly payment and interest you will pay over the life of your mortgage.

 

3.  Your down payment determines the amount of CMHC insurance you pay

 

Your CMHC insurance preemium, calculated as a percentage of your mortgage amount, gets smaller as you increase your down payment. To learn more about CMHC insurance and how it is calculated, visit out CMHC Insurance page.

 

 


 

  Courtesy of RateHub.Ca

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