Buying a home is an exciting milestone, but before you start shopping for your dream home, it’s important to understand one of the biggest upfront costs you'll face: the down payment.
Whether you're purchasing your first home or planning your next move, knowing how down payments work can help you budget confidently and make informed decisions throughout the homebuying journey.
What Is a Down Payment?
A down payment is the portion of a home's purchase price that you pay upfront using your own savings. The remaining balance is typically financed through a mortgage. The size of your down payment can affect everything from your mortgage amount to your insurance, so it is important to understand what you are getting into before you set your goal.
How Much Do You Need for a Down Payment?
In Canada, the minimum down payment required depends on the purchase price of the home:
Homes priced at $500,000 or less: 5% of the purchase price
Homes priced between $500,000 and $1.5 million: 5% of the first $500,000, plus 10% of the portion above $500,000
Homes priced at $1.5 million or more: 20% of the purchase price
While these are the minimum requirements, many buyers choose to save more if possible, to reduce their overall mortgage costs.
Why a Larger Down Payment Helps
A larger down payment means you're borrowing less money from your lender. This can lead to several advantages, including:
Lower monthly mortgage payments
Reduced interest costs over the life of the mortgage
Greater home equity from day one
Potential savings on mortgage insurance premiums
Even increasing your down payment by a small amount can make a meaningful difference in your long-term financial picture.
What Is Mortgage Loan Insurance?
If your down payment is less than 20% of the home's purchase price, you'll generally be required to obtain mortgage loan insurance.
Mortgage loan insurance protects the lender if mortgage payments cannot be maintained. Because the lender assumes less risk, insured mortgages often make homeownership more accessible for buyers with smaller down payments.
The cost of this insurance is called a premium and is added to the overall cost of borrowing. Generally, buyers who make larger down payments pay lower insurance premiums.
Deposit vs. Down Payment: What's the Difference?
These terms are often used interchangeably, but they're not the same thing.
Deposit: A deposit is the amount of money submitted when making an offer on a home. It shows the seller that you're serious about purchasing the property.
Down Payment: The down payment is the total amount of money you contribute toward the home's purchase price at closing. Your deposit is typically included as part of this total amount.
Think of the deposit as the first portion of your down payment rather than a separate expense.
Programs That Can Help with Your Down Payment
Saving for a down payment can feel overwhelming, especially for first-time buyers. Fortunately, there are many programs designed to help Canadians enter the housing market sooner!
The Home Buyers' Plan allows eligible first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use toward a home purchase. This can be a valuable option for buyers who have been contributing to their retirement savings and want to use those funds to help purchase a home.
A First Home Savings Account (FHSA) lets eligible first-time buyers save toward a home with tax advantages, including tax-deductible contributions and tax-free qualifying withdrawals.
There is also a new federal first-time home buyers’ GST/HST rebate on eligible new build homes, which means more money kept in your pocket to use as you please.
Your down payment is one of the most important pieces of your homebuying plan. Understanding the minimum requirements, the impact on your mortgage, and the assistance programs available can help you approach the purchase process with confidence.
I have my down payment ready, what’s next?
Congratulations! Now it’s time to visit our show homes to experience a Baywest home in-person, and talk to our team of experts who can help you find the home that’s a perfect fit for your lifestyle and your budget. We can’t wait to be your partner in this exciting journey!