What is a minimum down payment

A down payment is the amount of money you put towards the purchase of a home. Your lender deducts the down payment from the purchase price of your home. Your mortgage covers the rest of the price of the home.

The minimum amount you need for your down payment depends on the purchase price of the home.

If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.

If you’re self-employed or have a poor credit history, your lender may require a larger down payment.

Normally, the minimum down payment must come from your own funds. It’s better to save for a down payment and minimize your debts.

Example: How to calculate your minimum down payment

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

If the purchase price of your home is $500,000 or less

Suppose the purchase price of your home is $400,000. You need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5% is equal to $20,000.

If the purchase price of your home is more than $500,000

Suppose the purchase price of your home is $600,000. You can calculate your minimum down payment by adding 2 amounts. The first amount is 5% of the first $500,000, which is equal to $25,000. The second amount is 10% of the remaining balance of $100,000, which is equal to $10,000. Add both amounts together which gives you a total of $35,000.

What is mortgage loan insurance

Mortgage loan insurance protects the mortgage lender in case you can’t make your mortgage payments. It doesn’t protect you. Mortgage loan insurance is also sometimes called mortgage default insurance.

If your down payment is less than 20% of the price of your home, you’ll typically need to buy mortgage loan insurance.

Your lender may require that you get mortgage loan insurance, even if you have a 20% down payment. That’s usually the case if you’re self-employed or have a poor credit history.

Mortgage loan insurance isn’t available if:

• the purchase price of the home is $1 million or more
• the loan doesn’t meet the mortgage insurance company’s standards

Your lender coordinates getting mortgage loan insurance on your behalf if you need it.

Cost of mortgage loan insurance

The fee you pay for mortgage loan insurance is called a premium. Mortgage loan insurance premiums range from 0.6% to 4.5% of the amount of your mortgage. Your premium depends on the amount of your down payment. The bigger your down payment, the less you pay in mortgage loan insurance premiums.

Find premiums based on the amount of your mortgage:

• Canada Mortgage and Housing Corporation (CMHC)
• Sagen
• Canada Guaranty Mortgage Insurance Company

You may pay your premium by adding it to your mortgage or with a lump sum up front. If you add your premium to your mortgage, you pay interest on your premium. The interest rate is the same rate as you’re paying for your mortgage.

Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Your lender can’t add the provincial tax on premiums to your mortgage. You must pay this tax when you get your mortgage.

How the down payment affects the total cost of your mortgage

Save as much as you can for your down payment. The bigger the down payment, the smaller the mortgage, which may save you thousands of dollars in interest charges.

Example: How the size of a down payment affects the cost of a mortgage

Suppose you buy a home that costs $400,000.

Assume the following:

• interest rate is 4%
• amortization period is 25 years
• payment frequency is monthly
• mortgage loan insurance premiums are added to the mortgage

Home buying programs and incentives

Before you buy a home, consider the programs and incentives available to you.

Learn about home buying programs and incentives.