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The Lowdown on Down Payments

Published on December 12, 2016 in Qualification Guidelines by Eva

A down payment is the amount you can immediately contribute towards the cost of your home purchase. Since most people do not have enough savings to purchase a home outright, the gap between your down payment and the purchase price of your home is made up with a mortgage loan.

Down Payment + Mortgage Loan = Purchase Price of Your Home

If you have a down payment of 20%, you would be borrowing 80% of the home’s value.

The minimum down payment to buy a home in Canada is 5% of the purchase price. For example, to buy a home that costs $250,000, you will need a minimum of $12,500 as your down payment.

However, if you have under 20% down payment, you will need Mortgage Default Insurance.

If you have over 20% down payment, you quality for a conventional mortgage which generally does not require Mortgage Default Insurance.

Mortgage Default Insurance

Mortgage Default Insurance (sometimes called Mortgage Loan Insurance) protects the mortgage lender in case you are not able to make your mortgage payments.

Your mortgage costs will be slightly higher if you need to get Mortgage Default Insurance. The premiums you pay for your Mortgage Default Insurance are typically combined and rolled into your mortgage payments.

Mortgage Default Insurance is only available for high-ratio mortgages if the purchase price of the home is less than $1 million.

When you are ready to make an offer to buy a home, you will need to provide a deposit. The deposit forms part of your down payment, with the rest to be paid when you “close” the purchase of your new home.

In some cases, the minimum down payment can be higher than 5%. For example, if you are self-employed or have a poor credit history, you may be required to provide a higher down payment.

Down Payment Requirements for Homes Over $500,000

For homes over $500,000, you are required to have 10% down payment for the portion of the purchase price that is over $500,000. You only need 5% down payment for portion up to $500,000.

Example: Down payment required to purchase a $700,000 home

5% of $500,000 = $25,000

+

10% on $200,000 = $20,000


Down payment required = $45,000

Down Payment Requirements for Homes Over $1,000,000

For homes over $1,000,000, you must have a down payment of at least 20% or $200,000. These properties are not eligible for Mortgage Default Insurance because the down payment required is at least 20%.

Money Saving Tip

Save as much as you can for your down payment. A larger down payment means you need a smaller mortgage, which will save you thousands of dollars in interest charges.

Need More Information?

If you're interested in more information on this - or any topic related to home financing - please click on the button below.

Eva Poulson Mortgage Broker
BC & Alberta Mortgage Broker

Eva Poulson

When I'm not breaking the knuckles of different lenders for better mortgages for my clients - I'm kidding (or am I?) - you can usually find me visiting with friends or family, writing for this blog, or doing my best to keep from capsizing a dragon boat!

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