5% vs. 20% Down Payment: The Real Cost Difference in 2025’s Market

When buying a home, one of the first decisions you'll face is how much to put down. In 2025’s high-rate market, this choice matters more than ever. The down payment difference in 2025 Canada could shape your entire home-buying experience. 

In 2025, the Bank of Canada's interest rate stands at 2.75%, affecting mortgage rates nationwide. This means borrowing money isn't as cheap as it used to be. Follow the guidelines below when planning your home purchase.

Why Down Payment Size Matters in 2025’s High-Rate Market

In today’s market, where mortgage interest rates are higher than in previous years, your down payment size has a big impact. 

The larger your down payment, the less money you'll need to borrow. This reduces your monthly payments and saves you money in interest over time. 

Conversely, a smaller down payment means you borrow more, which increases both your monthly payment and the total interest paid.

Down Payment Difference 2025 Canada: 5% Vs. 20% 

In Canada, the minimum down payment is 5% for homes priced under $1 million. However, a 20% down payment is often considered the standard, and for good reason.

Upfront Costs

Let's use an example of an $800,000 home to illustrate the difference in upfront costs.

5% Down on an $800K Home

The down payment would be $40,000 (5% of $800,000). However, because you’re putting down less than 20%, you’ll need to pay for CMHC insurance. This is an extra cost that protects the lender in case you default on the loan. The cost of CMHC insurance for a 5% down payment can be about $19,760 for an $800,000 home. So, the total upfront cost comes to $59,760.

20% Down on an $800K Home

The down payment would be $160,000 (20% of $800,000). The best part? There’s no need to pay for CMHC insurance. This reduces your upfront costs to $160,000, a significant difference compared to the 5% down payment option.

 

Long-Term Costs (30-Year Mortgage at 5%)

Now, let’s consider how the size of your down payment affects your long-term mortgage costs. We’ll assume a fixed 5% interest rate over 30 years.

5% Down Payment

With a 5% down payment, you’re borrowing $760,000 ($800,000 home price minus the $40,000 down payment). Over 30 years, you would end up paying a total of approximately $560,000 in interest alone. The total mortgage cost would be $1,320,000 (your loan plus interest).

20% Down Payment

With a 20% down payment, you're borrowing only $640,000. Over the same 30-year period, you would pay about $440,000 in interest. This makes the total mortgage cost $1,080,000, which is $240,000 less than the 5% down payment option.

 

Understand Hidden Factors That Affect Your Decision

While the upfront cost and long-term costs are the most obvious differences, there are other hidden factors you should consider before making your decision.

1. CMHC Insurance

If you choose a down payment of less than 20%, you’re required to get mortgage default insurance, also known as CMHC insurance. This is an extra cost that is added to your mortgage loan and can range between 2.8% to 4% of the loan amount. For example, with a 5% down payment on an $800,000 home, the CMHC fee could add approximately $19,760 to your mortgage.

On the other hand, if you go for the 20% down payment, you won’t have to worry about CMHC insurance at all, saving you a significant amount of money.

2. Mortgage Rates

Another factor to consider is that lenders may offer better mortgage rates to those who can put down 20% or more. With a smaller down payment, lenders see you as a higher-risk borrower, which could mean higher interest rates. 

If you're still weighing your options, you might also explore alternative home-buying strategies, such as a five-year variable rate mortgage. It can be a good choice if you expect rates to decrease or want lower initial payments.

3. Monthly Payment Difference

The monthly payment difference between a 5% and a 20% down payment can be substantial. For a $800,000 home, the monthly mortgage payment with a 5% down payment could be about $4,200. Meanwhile, with a 20% down payment, your monthly payment could drop to around $3,000—a difference of $1,200 per month.

This extra $1,200 could be put toward other expenses, investments, or savings, making a significant impact on your financial flexibility.

5% vs. 20% Down Payment: Which Should You Choose?

Here’s a simple comparison to help you decide between a 5% down payment and a 20% down.

• 5% Down Payment: Great if you have less savings and want to get into the market faster. However, it comes with higher long-term costs, higher monthly payments, and CMHC insurance.
   
• 20% Down Payment: Ideal if you can afford to save up more. It gives you lower monthly payments, better mortgage rates and saves you money in interest over the life of the loan.
   

Conclusion

In the 2025 Canadian housing market, the down payment difference plays a key role in determining your upfront costs and long-term financial health. While the 5% down payment option may offer a quicker entry into the market, the 20% down payment option provides more long-term savings and stability. 

Want to explore Rent-to-Own in Canada: Does It Help Build Credit for a Mortgage? These can also offer flexibility based on your situation. Whatever path you choose, ensure you understand the cost.