The size of a down payment can vary. Depending on the type of mortgage, down payments generally range from 5% to 20% of the purchase price.
To obtain a conventional mortgage, home buyers are required to put down at least 20% of the purchase price or appraised value (whichever is less) as a down payment. If you don't have the necessary time or resources to save a full 20% down payment, you can choose a high-ratio mortgage and buy a home with a down payment of as little as 5%. This option is called a high-ratio mortgage and it requires you to purchase a default insurance.
Whether you choose a conventional or a high-ratio mortgage, one thing is almost always certain: the larger your down payment, the more you save in the long run.
A larger down payment...
- Reduces the amount of your monthly principal and interest payment
- Reduces the total amount of interest you pay over the life of your mortgage
RSP Home Buyers' Plan
The RSP Home Buyers' Plan (HBP) lets a first-time buyer withdraw up to $25,000 from RSPs for a home purchase. The withdrawn amount must be repaid within 15 years, subject to a minimum annual repayment that is 1/15 of the amount withdrawn. If the full $25,000 is withdrawn, the minimum annual repayment is $1,333. If less than the minimum is repaid in any particular year, the balance is added to the taxpayer's income.
Insuring Your High-Ratio Mortgage
CMHC or Genworth Financial may insure a mortgage for up to 95% of the lending value of the house. Therefore, purchasers do not need a large down payment. Eligible borrowers include anyone who buys a home in Canada intending to occupy it as their principal residence. And the availability of government-backed mortgage insurance is restricted to homes with a value of $1 million or less.
Purchasers can use up to 39% of their gross family income for payments of mortgage principal and interest, property taxes and heating. A buyer's total debt load (including consumer loans, etc.) cannot exceed 44% of the gross family income.
People who insure a mortgage loan with CMHC or Genworth pay a premium. The premium is based on the down payment and loan amount. A list of the mortgage insurance premiums can be found here.
- Cost: Premiums can be paid up front or added to the principal amount of the mortgage.
- Loan Amount: Up to 95% of the lending value of the house.
- Mortgage Term: To be set by the lending institution.
- Max. House Price: Varies by market.