# How much you need for a down payment

## Minimum down payment

A down payment is the amount of money that you put towards the purchase of a home. The down payment is deducted from the purchase price of your home. Your mortgage loan will cover the rest of the price of the home.

The minimum amount you'll need for your down payment depends on the purchase price of the home you'd like to buy.

Table 1: The minimum amount you'll need for your down payment based on the purchase price of your home
Purchase price of your homeMinimum amount of down payment
\$500,000 or less
• 5% of the purchase price
\$500,000 to \$999,999
• 5% of the first \$500,000 of the purchase price
• 10% for the portion of the purchase price above \$500,000
\$1 million or more
• 20% of the purchase price

If you're self-employed or have a poor credit history, you may be required to provide 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

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

Suppose the purchase price of your home is \$400,000. You’ll need a minimum down payment of 5% of the purchase price. The purchase price multiplied by 5%, for a total of \$20,000.

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

Suppose the purchase price of your home is \$600,000. Your minimum down payment will be 5% on the first \$500,000, for a total of \$25,000. On the remaining \$100,000, your minimum down payment will be 10%, for a total of \$10,000. Add both totals together and your minimum down payment would be \$35,000.

To help you come up with a down payment, you may be eligible for the Home Buyers’ Plan (HBP). The Home Buyer’s Plan allows you to withdraw up to \$25,000, tax-free, from your Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. You have up to 15 years to repay the amounts you withdrew.

• if you'll be able to make the repayments
• will withdrawing funds impact your retirement savings

Keep in mind:

• Not making the repayments could end up costing you a lot of money in income tax
• Even though you'll eventually repay the funds, you may still lose out on any growth while the funds are withdrawn

## Mortgage loan insurance

Mortgage loan insurance protects the mortgage lender in case you’re not able to 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 need to purchase mortgage loan insurance.

If you’re self-employed or have a poor credit history, you may also be required to get mortgage loan insurance, even if you have a 20% down payment.

Mortgage loan insurance isn't available, if:

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

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

### Cost of mortgage loan insurance

A premium is a fee you pay to get mortgage loan insurance.

Mortgage loan insurance premiums range from 0.6% to 4.50% of the amount of your mortgage. Your premium will depend on the amount of your down payment. The bigger your down payment, the less you’ll pay in mortgage loan insurance premiums.

Ontario, Manitoba and Quebec apply provincial sales tax to mortgage loan insurance premiums. Provincial taxes on premiums can’t be added to your mortgage loan. You must pay these taxes when your lender funds your mortgage.

#### Example: How mortgage loan insurance premiums are calculated

Suppose you want to buy a home for \$400,000. You have a down payment of \$56,000, which is 14% of the purchase price. Because your down payment is less than 20%, you’ll need to get mortgage loan insurance.

1. Take the price of your home and subtract your down payment (\$400,000 - \$56,000 = \$344,000)
2. Take the amount of your mortgage and multiply by the insurance premium (\$344,000 x 3.10% = \$10,664)

If you add the premium to your loan (\$344,000 + \$10,664 = \$354,664), your mortgage loan would now be \$354,664. You’ll now have to pay more interest charges because the amount of your mortgage has increased.

Let's assume you plan to pay off this mortgage over 25 years with a 4% interest rate. Compared to someone with a 20% down payment on the same home, you’ll pay an extra \$20,038 in interest on your mortgage loan insurance premium.

In total, you’ll pay \$30,702 in mortgage loan insurance.

## How the size of a down payment affects the total cost of a mortgage

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

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

You'd like to purchase 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 have been added to the mortgage loan
Table 2: Effect of the size of a down payment on the total cost of a mortgage
Down paymentDown payment amountMortgage loan

(includes mortgage loan insurance)
(includes mortgage loan, mortgage loan insurance, interest and down payment)
5%\$20,000\$380,000\$15,200\$395,200\$643,649
10%\$40,000\$360,000\$11,160\$371,160\$625,712
20%\$80,000\$320,000Not required\$320,000\$584,979

#### Get In Touch

Brian W. Rooney

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