Buying your first home: Three steps to successful mortgage shopping

Table of contents

Step 1: Know what you need and want in a mortgage

Down payment

A down payment is the amount of money that you pay at the time of purchase toward the price of your home. Your mortgage loan covers the rest. You should have a good idea of how much you can put toward the down payment before talking to a potential lender or mortgage broker.

On February 15, 2016, the minimum down payment for new insured mortgages increased from 5% to 10% for the portion of the house price above $500,000. The 5% minimum down payment for properties up to $500,000 remained unchanged.​

When you are ready to make an offer to buy a home, you will need to provide a deposit. The deposit forms part of your down payment, with the rest to be paid when you “close” the purchase of your new home.

In some cases, the minimum down payment can be higher than 5%. For example, if you are self-employed or have a poor credit history, you may be required to provide a higher down payment.

Tip

Save as much as you can for your down payment. A larger down payment means you need a smaller mortgage, which will save you thousands of dollars in interest charges.

If your down payment is less than 20% of the price of the home, you will have to purchase mortgage default insurance. For more information on mortgage default insurance, see the section called Mortgage default insurance.

Example

The following table shows how the size of your down payment affects the total costs to borrow for a mortgage.

Assumptions:

  • Interest rate: 5% (constant for entire amortization period)
  • Purchase price of home: $250,000
  • Amortization period: 25 years
  • Payment frequency: Monthly
  • Note: Any mortgage default insurance premiums have been added to the mortgage loan
Down payment Down payment amount Mortgage loan required Mortgage default insurance premium Total mortgage cost (principal and interest) after 25 years
5% $12,500 $246,050 $8,550 $429,312
10% $25,000 $230,400 $5,400 $402,005
20% $50,000 $200,000 Not required $348,963

Normally, the minimum down payment must come from your own funds. You may be eligible for other loans to help you come up with the down payment. However, it is always better to save for a down payment to minimize your debts.

You may be able to use funds from your Registered Retirement Savings Plan (RRSP) for your down payment with the Home Buyers’ Plan (HBP).

 


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