Mortgage Down Payment



The amount of money you pay upfront when buying a house is called mortgage down payment and helps getting best mortgage rates. It is usually mentioned in percentage and is assessed by dividing the dollar value of the down payment by the actual price of the home.


The least amount of mortgage down payment you must pay when purchasing a house in Canada is 5% and it normally varies between 5% and 20%. If the price of a house is over $1 million, the down payment has to be at least 20%.


In recent times, a huge chunk of home buyers have opted to pay at least 20% down payment in their bid to avoid mortgage default insurance, which is commonly known as CMHC insurance and is required with a down payment of less than 20%.


How Mortgage Down Payment Influences Your Finances?

The down payment influences the mortgage rates, monthly installment, size of your mortgage, the total price of the house and the insurance.


As the minimum down payment in Canada has to be 5%, this has a direct impact on the price of a house you can afford. For example, if your savings allow you to pay a maximum of $20,000 as down payment, you cannot afford to purchase a house that costs more than $400,000.


The greater payment you can pay upfront the lesser will be the interest rate and the monthly installments. Similarly, you can lower down the CMHC insurance by paying a bigger down payment and as mentioned above, it can be completely avoided if the down payment is at least 20%.


Mortgage Down Payment Sources

Making a mortgage down payment can be a daunting task for people who are on a fixed income. However, if you plan your finances properly, you can find several ways of accumulating the money to pay upfront when buying a house.


Primary sources for a mortgage down payment include monthly savings, selling property, stocks or bonds and taking help from immediate family.


If you are buying a home for the first time, you can also utilize RRSP Home Buyers’ Plan, which allows you to extract $25,000 from Registered Retirement Savings Plan and the best part is that it is tax free. Every experienced mortgage broker advises his clients to set up an RRSP account in advance and take advantage of this wonderful opportunity.


Borrowed funds and gifts from non-immediate relatives are considered as non-traditional sources for down payment; however, they can increase the amount of CMHC insurance by 0.15% for the minimum mortgage down payment.