How Much Down Payment for a House is Needed in Canada?
It’s important to have an accurate estimate of the money you need to buy a house. With that information, you can plan your expenses and save up accordingly. Though it may not be possible to tell you the exact amount of money you need because there are so many factors involved, we can help you get a useful estimate.
In this article, you’ll get a rundown of how much you’ll need to pay when buying a home, including the most common fees, taxes, and how much you should expect to pay as a down payment.
Minimum mortgage down payments
According to the Canada Real Estate Association, the average home price in November 2019 in Canada was $529,000. To keep things simple, we’ll use $500,000 as the baseline for calculating how much money you’ll need to buy a house. Adjust it up or down as needed to suit your situation.
For homes up to $500,000, you need a bare minimum downpayment of at least 5%. This means you may be able to buy a $500,000 home for as little as $25,000 down. For properties up to $1,000,000, the first $500,000 of the home requires a 5% downpayment and any amount above that requires a 10% downpayment. Finally, a property that costs more than $1,000,000 requires a minimum of 20% as downpayment.
Regardless of how much downpayment you put down, it is still necessary to show you can afford the mortgage and can continue to meet the monthly mortgage payments over time. A larger downpayment would mean smaller monthly payments, making it easier to fit the payments into your budget. You can save even more with a downpayment of 20% or higher as you wouldn’t need to pay for mortgage insurance, which can be up to 4% of your total mortgage value or tens of thousands of dollars.
CMHC mortgage insurance
Canadian Mortgage and Housing Corporation (CMHC) mortgage insurance is mandatory insurance that borrowers must take out if they have a downpayment of less than 20%. It is run by a federal organization and protects lenders against the risk of borrower default. The cost of the insurance ranges from 2.8% to 4% of the amount borrowed and is normally added onto the mortgage total. It is not an upfront closing cost but will instead be paid as part of your regular mortgage payments.
For example, if someone wants to buy a $500,000 property with a 5% down payment of $25,000, they will take out a mortgage of $475,000. With a 5% downpayment, CMHC mortgage insurance will cost 4%, or $19,000. This would be added to the mortgage for a total borrowed amount of $494,000. You can check your estimated insurance premium using Wowa’s CMHC insurance calculator.
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Even if someone can come up with a downpayment and afford the monthly payments for the mortgage and insurance premiums, that doesn’t mean they’ll qualify for a mortgage. In 2018, new mortgage rules were introduced that require every Canadian mortgage borrower to pass a mortgage stress test. Before, it was only required if you had a downpayment of less than 20%. Now, your capability to afford your mortgage will be tested using either the Bank of Canada’s 5-year benchmark rate or the rate your lender gives you plus 2%, whichever is higher. For example, if you put 20% down on a $500,000 home and your lender gives you a 4% interest rate, then you’ll have to qualify at a 6% interest rate. You can use WOWA’s stress test calculator to find out if you meet the requirements.
Taxes and closing costs
Closing costs vary from region to region but we’ve created a simple closing costs calculator that itemizes the expected fees you’ll pay. These fees include legal services, home inspection, title insurance, government registration fees, and more depending on where you live.
You can get a more comprehensive breakdown in our guide to closing costs. We take into account the taxes you’ll also be required to pay such as land transfer tax and, depending on the area, taxes (HST) on your CMHC insurance premium.
Land transfer taxes vary from place to place with some areas offering much lower rates and even rebates, especially for first time home buyers. Use our land transfer tax calculator to find out how much the land transfer tax will be in your area. For foreign nationals without residency or citizenship, certain regions in Toronto and Vancouver have an additional tax known as the non-resident speculation tax (NSRT) which is equal to 15% or 20% of the property value respectively. You may obtain a full rebate if certain conditions are met.
Don’t forget about the impact of mortgage rates
Closing fees will just be a small part of the total costs of owning your home. Your mortgage payments will be your primary expense over the years, and interest rates are the primary driver behind your mortgage payments. If you can get a low interest rate, you can reduce your mortgage payments significantly over the course of your mortgage. To demonstrate the impact of a lower rate, you can save $1000 a year on a $500k mortgage if you lower your mortgage interest rate by just 20bp (0.2%).
As of April 2020, you have a good chance of getting record-low variable mortgage rates due to actions by Canada’s central bank in response to COVID-19. Fixed-rates have also fallen, though not to the same extent. You can compare both fixed and variable rates of any term on WOWA’s mortgage page.
There are many costs associated with buying a home that go well beyond the down payment or mortgage interest. A Canadian citizen or permanent resident moving into a $500,000 property in Toronto can expect to pay at least $16,470 in closing costs, a minimum of $25,000 as down payment, and $19,000 for their mortgage insurance premium.