How Much Down Payment Do You Need for a Mortgage in Canada?

When buying a home, one of the first things you'll think about is how much money you need for the down payment in Canada. 

It can be tricky to understand, but don't worry—we'll explain it simply. 

Whether you're a first-time homebuyer or someone looking to upgrade your current home, knowing the down payment requirements is a crucial step in your home-buying journey.

What is a Down Payment?

A down payment is the money you pay upfront when buying a house. 

It's not the full price of the home but a portion of it. The remaining money is usually borrowed from a bank or lender as a mortgage loan in Canada.

The size of your down payment is important because it affects how much you will borrow, your mortgage terms, and whether you'll need mortgage insurance.

Why a Required Minimum Down Payment in Canada?

The minimum down payment required in Canada depends on the price of the home you're buying. Here's how it works:

1. For homes costing less than $500,000, the minimum down payment is 5% of the home's price.
2. Homes priced between $500,000 and $999,999 – You'll need 5% of the first $500,000 and 10% for the portion of the price above that.
3. For homes priced at $1 million or more – You'll need a 20% down payment.

Example:

• If you buy a home worth $400,000, you need a down payment of 5%, which is $20,000.
• If your home costs $600,000, your down payment would be 5% of $500,000 ($25,000) plus 10% of the remaining $100,000 ($10,000) for $35,000.

What is Mortgage Insurance in Canada?

If you're putting down less than 20% of the home's purchase price, you must pay for Mortgage Insurance Canada. This is often called CMHC Mortgage Insurance (from the Canada Mortgage and Housing Corporation) or other private mortgage insurance providers.

Mortgage insurance protects the lender if you can't make your mortgage payments. While it’s not a cost you want, it allows you to buy a home with a lower down payment, like 5% or 10%. This can be a helpful option, especially for first-time homebuyers.

Moreover, a mortgage deposit in Canada is the upfront payment made when buying a home. It reduces the loan amount and impacts mortgage approval, interest rates, and home affordability.

What Are the Down Payment Requirements?

The down payment requirements vary based on your financial situation and the lender. But generally, most people will need at least 5% for a home costing less than $500,000. For homes priced over that, you'll need a more significant percentage.

A larger down payment can have benefits:

• Lower monthly mortgage payments
• Better mortgage rates
• Less interest paid over the loan's lifetime
• No need for mortgage insurance

You might not need mortgage insurance if you can pay 20% or more. This is called a conventional mortgage.

Canada Mortgage Programs and Down Payment Assistance

Canada has several programs that can help with your down payment:

• Home Buyer's Program: If you're a first-time buyer, this program can help reduce the amount you owe on your taxes.
• Down Payment Assistance: Some provinces offer programs that help you cover your down payment.
• First-Time Homebuyers' Tax Credit: You could qualify for a tax credit to help with your costs.

These programs are designed to make home buying easier, especially for first-time buyers.

What is Mortgage Pre-Approval?

Before you start shopping for homes, getting a mortgage pre-approval is a good idea.

This means that a lender has examined your financial situation (income, debts, credit score) and agreed to lend you a certain amount of money to buy a house. This can give you a clear idea of how much you can spend on your new home.

Getting pre-approved also shows sellers that you are a serious buyer. Once you find the perfect home, it can speed up the process.

Low Down Payment Mortgages and Mortgage Affordability

Some buyers may not have much savings for a down payment. Fortunately, low-down payment mortgages are available in Canada.

Many lenders offer mortgages that require as little as 5% down. However, you should also keep an eye on your mortgage affordability.

Just because you can qualify for a lower down payment doesn't mean it's your best choice. Ensuring you can afford your monthly payments, including your mortgage, property taxes, and insurance, is essential.

Here are some tips:

• Stick to a budget
• Get advice on what you can afford
• Use online mortgage calculators to get an idea of your costs

Life doesn't always go as planned. What can you do if you miss a mortgage payment in Canada? If this happens, don't panic. It's essential to address the issue quickly.

• Contact your lender right away. Most lenders will work with you if you're having trouble making payments.
• Look for government programs that assist with payments during tough times.

Understanding what happens if you miss a mortgage payment is key to staying on top of your finances.

Conclusion

The mortgage down payment is essential to buying a home in Canada. However, the minimum down payment can vary depending on the price of your home, and you may need mortgage insurance if your down payment is less than 20%.

Various Canada mortgage programs and down payment assistance options also help make homeownership more affordable.

Make sure to get pre-approval before you start house hunting, and consider your mortgage affordability.

The more you know about the process, the better prepared you'll be to buy your home with confidence.

If you have any questions or need advice on your mortgage journey, please contact us at LendingHub! We're here to help you find the best options for your needs.