How Much Is a Down Payment on a House

Purchasing a home is one of the most significant financial decisions a person can make. Whether you are a first-time home buyer or a seasoned property investor, understanding how much you need for a down payment is crucial. In Canada, down payment requirements can vary depending on the purchase price of the home and your financial circumstances. This guide will walk you through everything you need to know about down payments, including minimum requirements, tips for saving, and how it affects your mortgage.

What Is a Down Payment?

A down payment is the portion of the home’s purchase price that you pay upfront. The rest of the price is typically financed through a mortgage loan. For example, if you're buying a home worth $500,000 and you put down $25,000, you're making a 5% down payment and borrowing the remaining $475,000 through your mortgage lender.

The size of your down payment influences several aspects of your home financing, including your monthly payments, the length of your mortgage, and whether or not you need to pay mortgage insurance.

Minimum Down Payment Requirements in Canada

The required minimum down payment in Canada depends on the price of the home:

• For homes up to $500,000: The minimum down payment is 5% of the purchase price.

• For homes between $500,000 and $999,999: The minimum is 5% of the first $500,000, plus 10% of the portion above $500,000.

• For homes of $1 million or more: A flat 20% down payment is required.

Example:

If you're buying a home priced at $750,000

• 5% on the first $500,000 = $25,000

• 10% on the remaining $250,000 = $25,000

• Total minimum down payment: $50,000

When Is a 20% Down Payment Required?

If your home costs $1 million or more, the law requires a minimum down payment of 20%. In addition to this rule, putting down 20% or more on any property allows you to avoid paying mortgage default insurance, which can significantly reduce your long-term costs.

What Is Mortgage Default Insurance?

Mortgage default insurance is required by lenders when your down payment is less than 20% of the home’s value. This insurance protects the lender if you default on your mortgage. While it adds to your overall cost, it enables homebuyers with smaller down payments to still access the housing market.

The insurance premium is calculated as a percentage of your loan and depends on the size of your down payment. The smaller the down payment, the higher the insurance rate. This premium is typically added to your mortgage rather than paid upfront.

Why Making a Larger Down Payment Can Help

While it's possible to purchase a home with as little as 5% down (depending on the price), there are clear advantages to putting down more if you can afford it:

• Lower Mortgage Payments: A larger down payment reduces the amount you need to borrow, resulting in smaller monthly payments.

• No Mortgage Insurance: With a 20% down payment, you avoid the cost of mortgage insurance altogether.

• Lower Interest Rates: Lenders may offer better interest rates to borrowers who have made larger down payments.

• Build Equity Faster: The more you pay upfront, the quicker you build equity in your home.

How to Save for a Down Payment

Saving for a down payment can feel like a major hurdle, especially in high-cost housing markets. Here are a few tips to help:

1. Set a Budget: Determine how much you can realistically save each month and create a dedicated savings plan.

2. Open a Separate Savings Account: Keep your down payment funds separate to avoid using them for everyday expenses.

3. Use Government Programs: If you're a first-time home buyer, you may be eligible for programs like the Home Buyers' Plan (HBP), which allows you to withdraw up to $35,000 from your RRSPs tax-free.

4. Cut Unnecessary Expenses: Review your monthly spending and reduce non-essential items to redirect more money into your down payment fund.

5. Automate Your Savings: Set up automatic transfers to make consistent contributions to your savings.

First-Time Home buyers and Incentives

First-time buyers may also benefit from federal and provincial programs designed to make home ownership more affordable. These programs may include tax rebates, incentives for energy-efficient homes, or shared equity programs that reduce the upfront burden.

It’s worth speaking with a mortgage broker or financial advisor to explore your eligibility and determine which programs best suit your situation.

Conclusion

Your down payment is one of the most important factors in your homebuying journey. It influences everything from the size of your mortgage to your monthly payments and overall affordability. Whether you're aiming for the minimum required amount or working toward a 20% down payment, having a clear savings strategy and understanding your options can make the process more manageable.

At Jag Sidhu Real Estate Group, we understand that navigating the financial aspects of buying a home can be overwhelming. That’s why we’re here to provide guidance every step of the way—from understanding down payments to finding the right home that fits your budget. Let us help you make smart, confident decisions in your home ownership journey.