# Mortgage Down Payment Calculator

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.

-Down payment
+CMHC insurance
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=Total mortgage
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## Guide to down payments

### 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 default insurance, also commonly referred to as CMHC insurance, is mandatory coverage that is taken out by high-ratio mortgage holders, who make less than a 20% down payment on their home purchase. The coverage benefit goes towards the lender in the event the borrower is unable to make their mortgage payments.

Because they’ve made a smaller down payment and therefore hold less equity in their property, high-ratio borrowers are considered to pose a larger default risk to lenders, which is why they must pay for these coverage premiums on top of their mortgage payments. Borrowers who make a down payment 20% or larger are considered to have conventional mortgages, and are not required to take out CMHC insurance.

### 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:

#### 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%. For example, if you have saved \$25,000 for your down payment, 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. For example, if you have saved \$40,000 for your down payment, 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 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 mortgage default insurance you pay

Down Payment (% of Home Price)
5% - 9.99% 10% - 14.99% 15%-19.99% 20% or higher
4.00% 3.10% 2.80% 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.

#### Case study

Home Price Down Payment CMHC Insurance Scenario A Scenario B \$300,000 \$300,000 \$25,000 \$40,000 \$8,663 \$6,240 \$283,663 \$266,240 \$1,342 \$1,260 \$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.

### 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 home buyers withdraw up to \$60,000 from Registered Retirement Savings Plans (RRSPs) for a home purchase, tax-free. Many first-time home buyers 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 real estate.

In the 2022 budget, the federal government announced the creation of a new vehicle to help Canadians save for their down payments. You can head over to our purpose-built page to learn all about the First Home Savings Account, which became available as of April 1, 2023. Essentially, it's a tax shelter that allows you to make tax deductions on your contributions, and any money it earns is tax-free as well. Moreover, when you withdraw money from it, unlike in the case of an RRSP, you won't need to pay it back.

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:

#### Option 1: use the mortgage value to calculate your LTV ratio

• \$100,000 (home value) - \$25,0000 (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 payent amount) ÷ \$100,0000 (home price)
= \$25% (down payment percent)
• 100% (home price percent) - 25% (down payment per cent)
75% (loan-to-value ratio)

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

### References and Notes

2. Canada Mortgage and Housing Corporation (CMHC)