When you buy or lease a new car, you are given the option to put some money down at the time of purchase, so you can lower the amount you may have to finance. A down payment works the same way, when you are taking out a mortgage on a house. Usually expressed as a percentage, the amount you put down is calculated as a dollar amount and subtracted from the price of the home. Whatever is leftover becomes your mortgage.

What is the minimum down payment I can make in Canada?

In Canada, you have to put down at least 5% of the purchase price of the home. For example, if you bought a home for $200,000, your down payment would have to be at least $10,000. The typical down payment is in the 5-20% range. However, as of July 9th, 2012, homes priced over $1 million require a minimum 20% down payment.

How much do I need to put down to avoid having to pay for mortgage default insurance?

If you put down less than 20%, you have to pay mortgage default insurance. Default insurance protects the lender, in the event you default on your mortgage.

How much default insurance you pay depends on the percent range your down payment falls under. The table below shows how CMHC calculates its premium rates.

Does the amount I save for a down payment affect the home price I can afford?

Yes. The more you save, the more buying power you may have. While your income and debt levels also affect the maximum amount you can be pre-approved for, having more money to put down gives you the option to either: 1) put a larger percentage of cash down to decrease your monthly mortgage payment, or 2) put a smaller percentage of cash down on a slightly more expensive property.

How does the amount I put down affect my mortgage and monthly payment?

It’s simple. The more cash you put down upfront, the less you’ll have to finance. The percentage of your down payment also affects how much mortgage default insurance you will need to pay - none at all, if you put down 20% or more.

In the example below, you can see how putting a 5% down payment on a $250,000 home means you’ll have to finance an extra $44,031, compared to if you put down 20%; this results in having to add an extra $207 to your monthly mortgage payment.

How can I pay for my down payment?

In Canada, the two most popular ways to save for a down payment are by contributing to Registered Retirement Savings Plans (RRSPs) and/or Tax-Free Savings Accounts (TFSAs). With RRSPs, you can withdraw up to $25,000 tax-free using the First-Time Home Buyers’ Plan. TFSAs also allow you to withdraw your savings tax-free, but you can only contribute $5,000 per year and get a potentially lower rate of return.

To help pay for your down payment, you can also look at selling stocks, bonds or personal property, or reach out to family. Non-traditional sources for a down payment include borrowed funds, as well as gifts from non-immediate family members.