1. Buying
  2. How Much Can I afford?

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.

Asking Price

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 STEP 1
Enter the price of the home you're interested in and press GO.
Down payment Down payment The amount of money you pay up front to obtain a mortgage. The minimum down payment in Canada is 5%. For down payments of less than 20%, home buyers are required to purchase mortgage default insurance, commonly referred to as CMHC insurance.
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Amortization period Amortization period The length of time it will take a homeowner to pay off his/her mortgage. In Canada, the maximum amortization period is 25 years. Longer amortization periods allow homeowners to make smaller monthly payments, but equate to more interest paid over the life of the mortgage.  
 
STEP 2
Choose an amortization period.
Mortgage insurance Mortgage insurance Mortgage default insurance, commonly referred to as CMHC insurance, protects the lender in the case the borrower defaults on the mortgage. Mortgage default insurance is required on all mortgages with down payments of less than 20%, which are known as high ratio mortgages. Mortgage default insurance is calculated as a percentage applied to your mortgage amount. plus
Total Mortgage Required equals $- $- $- $-

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What is the minimum down payment required in Canada?

The minimum down payment in Canada, on homes less than $1M, is 5%, with the typical down payment ranging from 5-20% of the home price. According to a recent TD Canada Trust Home Buyers Report1, 30% of homebuyers plan to or have at least a 20% down payment, the point at which mortgage default insurance is no longer required.

As of July 9th 2012, home prices over $1 million require a minimum 20% down payment.

Mortgage default 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 amount you put down at the beginning of your mortgage shapes three important outputs over the life of the mortgage:

  • 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, your maximum home price would be: down payment amount / 5%. For example, if you have saved $30,000 for your down payment, the maximum home price you could afford would be $30,000 / 5% = $600,000. Naturally, as your affordability is also a function of your income and debt levels, you should visit our mortgage affordability calculator for a more detailed analysis.

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 premium, calculated as a percent of your mortgage amount, gets smaller as you increase your down payment. To learn more about CMHC insurance and how it is calculated, please visit our CMHC insurance page.

Down Payment (% of Home Price)
5% - 9.99% 10% - 14.99% 15%-19.99% 20% or higher
3.15% 2.40% 1.80% 0.00%

Example to illustrate the effect of two different down payments

Let's 'say you are considering a home priced at $300,000 and are deciding whether to put down $25,000 or $40,000. The mortgage rate is 3.00% and the amortization period is 25 years.

$ 300,000
House Value
% 3.00
Mortgage Rate
25 Yrs
Amortization
Scenario A Scenario B
Home Price $300,000 $300,000
Down Payment $25,000 $40,000
CMHC Insurance $8,663 $6,240
Total Mortgage $283,663 $266,240
Monthly Mortgage Payment $1,342 $1,260
Total Payments over 25 Years $402,726 $377,991

Under Scenario B, the additional $15,000 put towards the mortgage down payment lowers CMHC insurance by $2,423 and saves the homebuyer around $25,000 in interest over the life of the mortgage. However, it is also important to consider the opportunity cost, or alternative uses for the additional outlay under Scenario B. You must look at your expected returns associated with RRSP contributions, stock investments, and/or debt repayments, for example, to make an informed decision.


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Mortgage down payment sources

There are a number of ways you can source funds for a mortgage down payment. Traditional sources include saving a fixed amount from every paycheque, selling stocks, bonds or personal property, or reaching out to immediate family, for example. Another great option is the RRSP Home Buyers' Plan (HBP) which lets first-time homebuyers withdraw up to $25,000 from Registered Retirement Savings Plans (RRSPs) for a home purchase, tax-free. Many first-time homebuyers take advantage of this opportunity and set up RRSP accounts well in advance, with the intention to reap the rewards when it is time to purchase a house.

Non-traditional sources for a down payment include borrowed funds, and gifts from non-immediate family members. It is important to note, however, that when you employ non-traditional sources for your down payment, you will incur a CMHC insurance surcharge of 0.15% for down payments of 5% or less.2


Loan-to-value ratio

An alternative way to look at the down payment is to employ the loan-to-value ratio (LTV), which describes the mortgage value in relation to the home price (mortgage value / home price). A function of the down payment percentage, it can also be calculated as (1 – down payment %). Let''s take a look at the example below.

$ 100,000
House Value
$ 25,000
Down Payment
Option 1 : Use the mortgage value to calculate your LTV ratio
$100,000 home value $25,000 down payment amount =
$75,000 mortgage value
$75,000 mortgage value ÷ $100,000 home price =
75% loan-to-value ratio
Option 2 : Use your down payment % to calculate your LTV ratio
$25,000 down payment amount ÷ $100,000 home price =
25% down payment percent
100% home price percent 25% down payment percent =
75% loan-to-value ratio

The maximum LTV in Canada is 95%, as the minimum down payment is 5%.


References and Notes

  1. First time home buyers in B.C. choose condos, TD Bank, 2010-07-05
  2. Canada Mortgage and Housing Corporation (CMHC)