When you purchase a home in Canada, you are required to pay a down payment, a percentage of the initial purchase price. The amount of your down payment is based on whether you choose a conventional mortgage or an insured high-ratio mortgage.
What is a conventional mortgage?
A conventional mortgage requires a down payment of 20% of the purchase price or appraised value of the property, whichever is less. Put another way, with a conventional mortgage the lender can provide 80% of the purchase price; the other 20% must be provided upfront by the lendee. A $350,000 property would require a $70,000 minimum down payment. A $700,000 property would require a minimum down payment of $140,000.
What is a high-ratio mortgage?
A high-ratio mortgage allows a down payment as low as 5% of the purchase price or appraised value of a property. Put another way, with a high-ratio mortgage, the lender can provide up to 95% of the purchase price; the other 5% must be provided upfront by the lendee. A $350,000 property would require a $17,500 minimum down payment. A $700,000 property would require a minimum down payment or $45,000 (see note below about 2016’s new down payment rules).
High-ratio mortgages require mortgage insurance from a provider such as CMHC or Genworth. You must also pay a premium for this insurance. The insurance premium is a small percentage of the mortgage amount – typically between 0.5% to 3.75%. The premium may be paid upfront at the time of purchase or added to the mortgage principal to be paid over time. (Note: in Ontario the premium is subject to provincial sales tax which cannot be added to the mortgage principal).
2016 Down Payment Changes
This year, there are changes to the minimum down payment, effective February 15, 2016. For homes with a purchase price of $500,000 or less, the minimum down payment remains at 5%. For homes with a purchase price of $1 million or more, the minimum down payment is 20%. The homes between $500,000 and $1 million, the minimum down payment is 5% for the first $500,000, and ten percent of the remaining balance. In our $700,000 example above, $25,000 is the down payment for the first $500,000; 10% of the remainder ($200,000) is $20,000. Therefore, $45,000 is the new minimum down payment for a home valued at $700,000.
You can calculate your estimated down payment using The Mortgage Advisors’ down payment calculator.
The Mortgage Advisors is proud to provide expert advice to homeowners and prospective home buyers. The Mortgage Advisors is one of the fastest growing brokerages in Eastern Ontario, with offices conveniently located in Ottawa, Stittsville, Nepean, Orleans, Kingston, Renfrew, Brockville, Perth, and Cobourg.