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Mortgage down payment

Last updated: September 16, 2022

How does the minimum down payment work?

The minimum down payment amount in Ontario and across Canada is 5% of the first $500,000 of home purchase price. This applies regardless of whether you are a first-time home buyer or upgrading your home. For example, if your purchase price was $500,000, your minimum down payment would be $25,000.

Any purchase over and above $500,000 will be a minimum down payment of 10%. For example, if you have a purchase price of $800,000 the minimum down payment would be 5% of the first $500,000 which is $25,000 and then 10% on the remaining $300,000 which would be $30,000. The total minimum down payment on a $800,000 home would be $55,000.

Purchase price of your home Minimum amount of down payment
$500,000 or less 5% of the purchase price
$500,000 to $999,999 5% of the first $500,000 of the purchase price 10% for the portion of the purchase price above $500,000
$1 million or more 20% of the purchase price

In summary, the first $500,000 will require a minimum of 5% down payment and every dollar above the purchase price of $500,000 will require a 10% down payment.

What are the different kinds of minimum down payment?

There are different down payment minimums in the market which are based on different purchase types. Here a few of the different down payment minimums:

Owner-occupied home

5% minimum down payment on the first $500,000 and 10% for anything above the initial $500,000. Combine the total of the two to get the minimum. A 20% down payment is the minimum you need in order to avoid the CMHC premium. You can go as low as 4% if you are putting down a down payment less than 20%.

Rental property

20% down payment is the minimum down payment on a rental for most lenders

Second home

You need a minimum of a 5% down payment for a second home for family, recreation or other purposes. With 20% down payment, there is no CMHC or default insurance fee.

How does a down payment affect my mortgage rate?

Mortgage rates can fluctuate based on the down payment and is probably one of the biggest factors when determining your rate.

If you have less than 20% down payment, this is considered a high ratio default insurance mortgage or CMHC mortgage. The lender has little to no risk associated because they are protected against borrower default, and can therefore offer better rates. In fact, most rates you see online are CMHC insured or high ratio mortgage rates.

If you have a 20% down payment, the lender is exposed to default risk since they are no longer protected by the CMHC. Rates are typically slightly higher when it is at the 20% mark since it is considered the lowest minimum down payment in this regard and the most risk a lender can assume.

A 25% or more down payment can possibly get you some of the lowest rates with some lenders. Lender risk decreases as the down payment increases, which will cause rates to fall towards the levels seen with the high ratio rates. 25% can get you some low rates with certain lenders but some lenders will require a minimum of 35% to obtain their lowest rate.

Are there benefits to having a 20% down payment?

With a 20% down payment you are not required to have mortgage default insurance which could possibly result in a slightly higher rate but cost of borrowing would be lower and is technically better than having to pay a 4%-5% CMHC premium. The savings with a 20% down payment can be significant compared to a lower rate CMHC insured mortgage. In addition to this, when you have a 20% down payment, the 30 year amortization becomes available and also allows you to lower your monthly payments for your mortgage. However, this doesn’t mean that you need to wait until you have 20% down to buy a property. Speak to a Perch mortgage advisor to see what options are available for you.