When it comes to purchasing a home in Canada, one of the biggest financial decisions you’ll make is how much to put down. Your down payment not only affects your mortgage terms but can significantly impact your monthly payments and long-term savings.
While Canadian homebuyers can secure a mortgage with as little as 5% down, choosing to put down more—especially 20% or more—can lead to substantial financial benefits. Here’s what you need to know about how the size of your down payment shapes your homeownership journey.
Conventional vs. High-Ratio Mortgages: What’s the Difference?
- Conventional Mortgage: Requires a minimum 20% down payment. With this option, you don’t need to pay mortgage default insurance.
- High-Ratio Mortgage: Allows for a minimum down payment of 5%, but comes with mandatory mortgage default insurance.
High-ratio mortgages can make homeownership more accessible, but they cost more in the long run due to the added insurance premiums. Whether you choose a conventional or high-ratio mortgage, putting down more upfront reduces your overall borrowing costs.
Learn more about mortgage rules in Canada through the Canada Revenue Agency.
Benefits of a Larger Down Payment
Making a larger down payment provides financial advantages that go beyond the initial purchase:
- Lower monthly mortgage payments
- Reduced overall interest costs over time
- No need for mortgage insurance with 20% down or more
- Improved mortgage qualification and flexibility
While it can take time to save up for a larger down payment, the long-term savings are often worth the effort.
Use the RRSP Home Buyers’ Plan (HBP)
First-time buyers can leverage their RRSP savings through the Home Buyers’ Plan (HBP). This federal program allows you to withdraw up to $35,000 (as of 2024) from your RRSP tax-free to put toward your down payment.
- Funds must be repaid over 15 years
- Annual minimum repayment: 1/15 of the amount withdrawn
- Missed repayments are added to your taxable income
Learn more and check eligibility via the Home Buyers’ Plan.
High-Ratio Mortgage Insurance: CMHC & Sagen
If your down payment is under 20%, your lender will require mortgage insurance through a provider like CMHC or Sagen (formerly Genworth Financial).
Key Facts:
- Coverage available for homes under $1,000,000
- Buyers must plan to occupy the home as their primary residence
- Mortgage insurance premiums are based on your loan-to-value ratio
Premiums can either be paid upfront or added to your mortgage balance.
Know Your Ratios: What You Can Afford
To qualify for mortgage insurance, your financial situation must meet specific guidelines:
- Gross Debt Service Ratio (GDS): Max 39% of household income
- Total Debt Service Ratio (TDS): Max 44% of household income
These limits include mortgage payments, property taxes, heating costs, and any other loans. Use a mortgage affordability calculator to estimate how much home you can afford based on your income and down payment.
Final Thoughts: Strategize Your Down Payment
The size of your down payment is more than just a number—it’s a financial strategy. Whether you’re saving up to avoid mortgage insurance or eager to get into the market with 5% down, understanding your options can help you make a smarter investment.
Still have questions about which approach is right for you? Reach out anytime—I’m here to guide you through the process and connect you with trusted mortgage professionals to help make your dream of homeownership a reality.