What is the minimum down payment required in Canada?

The minimum down payment in Canada is 5%, with the typical down payment ranging from 5%-20% of the home price. According to a recent TD Canada Trust Home Buyers Report, 30% of home buyers plan to or have at least a 20% down payment, the point at which mortgage default insurance is no longer required.

On July 9th 2012, home prices over $1 million will require a minimum 20% down.

Mortgage default insurance, commonly referred to as CMHC insurance, protects the lender in the case the borrower defaults on the mortgage. It is required on all mortgages with down payments of less than 20%, which are known as high ratio mortgages. A conventional mortgage, on the other hand, is one where the down payment is 20% or higher.

The size of your down payment influences three things

The amount you put down at the beginning of your mortgage shapes three important outputs over the life of the mortgage:

1. The home price you can afford

2. The size of your mortgage and monthly payment

3. The amount of CMHC insurance you pay

1. Your down payment influences the home price you can afford

Because the minimum down payment in Canada is 5%, this benchmark is used to determine your maximum affordability. Ignoring your income and debt levels, your maximum mortgage would be [down payment $ / 5%]. For example, if you have saved $30,000 for your down payment, the maximum mortgage you could afford would be $30,000 / 5% = $600,000. Naturally, as your affordability is also a function of your income and debt levels, you should visit our mortgage affordability calculator for a more detailed analysis.

2. Your down payment shapes the size of your mortgage and monthly payment

A larger down payment reduces the size of your mortgage, and, therefore, the monthly payment and interest you will pay over the life of your mortgage.

For example, let us say you are considering a home at a value of $300,000 and are deciding whether to put down $25,000 or $40,000. The other mortgage inputs are as follows:

Home price: $300,000

Mortgage rate: 5.00%

Amortization: 25 years

	Scenario A	Scenario B
Home price	$300,000	$300,000
Down payment	$25,000	$40,000
CMHC insurance	$5,500	$4,550
Total mortgage	$280,500	$259,463
Monthly mortgage payment	$1,631	$1,539
Total payments over 25 years	$489,446	$461,616

Under Scenario B, the additional $15,000 put towards the mortgage down payment lowers CMHC insurance by approximately $1,000 and saves the homebuyer around $29,000 in interest over the life of the mortgage. However, it is also important to consider the opportunity cost, or alternative uses for the additional outlay under Scenario B. You must look at your expected returns associated with RRSP contributions, stock investments, and/or debt repayments, for example, to make an informed decision.

3. Your down payment determines the amount of CMHC insurance you pay

As shown in the example above, CMHC insurance is a function of the amount of your down payment. Your CMHC insurance premium, calculated as a percent of your mortgage amount, gets smaller as you increase your down payment. To learn more about CMHC insurance and how it is calculated, please visit our CMHC insurance page.

Mortgage down payment sources

There are number of ways you can source funds for a mortgage down payment. Traditional sources include saving a fixed amount from every pay-cheque, selling stocks, bonds or personal property, or reaching out to immediate family, for example. Another great option is the RRSP Home Buyers' Plan (HBP) which lets first-time home buyers withdraw up to $25,000 from Registered Retirement Savings Plans (RRSPs) for a home purchase, tax-free. Many first-time home buyers take advantage of this opportunity and set up RRSP accounts well in advance, with the intention to reap the rewards when it is time to purchase a house.

Non-traditional sources for a down payment include borrowed funds, and gifts from non-immediate family members. It is important to note, however, that when you employ non-traditional sources for your down payment, you will incur a CMHC insurance surcharge of 0.15% for down payments of 5% or less.¹

Loan to value ratio

An alternative way to look at the down payment is to employ the Loan to Value ratio (LTV), which describes the mortgage value in relation to the home price (mortgage value / home price). A function of the down payment percentage, it can also be calculated as [1 – down payment %]. For example, if your property is priced at $100,000 and your down payment is $25,000, your required mortgage amount is $75,000 ($100,000 - $25,000). Your down payment percentage would be 25% ($25,000 / $100,000), and your LTV would be 75% ($75,000 / $100,000 or 100% - 25%). The maximum LTV in Canada is 95%, as the minimum down payment is 5%.

[1] Canada Mortgage and Housing Corporation (CMHC)

Welcome to Aroi Mortgage Investment Corporation

With headquarters located in the heart of the Annapolis Valley, aroi Mortgage Investment Corporation’s team of experienced lending professionals understand all aspects of property financing throughout Nova Scotia, from rural regions to the city of Halifax.

aroi has experience with a variety of character and common sense based lending scenarios:

• Some individuals find themselves struggling through financial hardship and learn too late that they no longer qualify for a refinance to tap equity from their home to resolve threats of judgement and foreclosure.
• Divorce, where one departing spouse wishes to maintain ownership of the family home and requires short-term bridge financing.
• Collection settlement as part of the credit score restoration process to return your client to a low-cost of borrowing with institutional lenders.
• aroi understands the Consumer Proposal process and can provide special financing to pay out your proposal instantly, greatly decreasing the time is takes to re-establish credit.
• The situations are diverse and the underwriting requirements equally variable. The aroi team looks forward to discussing your client’s predicament to best structure a financing proposal.

What We Offer

With it’s headquarters located in the heart of the Annapolis Valley, aroi’s team of experienced mortgage industry professionals understand all aspects of property financing throughout Nova Scotia, from rural regions to the city of Halifax.

aroi can develop a solution for every situation from a home owner with perfect credit searching for the best possible rate to an individual who is struggling with financial hardship and seeks relief from the threat of foreclosure.

Mortgages

• pre approval for home purchases
• construction mortgages
• refinancing
• lines of credit
• 2% down payment
• credit advice
• land financing
• commercial property mortgages
• emergency consolidation mortgages

Aroi Mortgage Investment Corporation.

115 Coldbrook Village Park Dr
Coldbrook, Nova Scotia Canada
B4R 1B9

Nova Scotia Mortgage Lender License: #1636758

ph: (902)-365-1100
Toll Free: (866)-496-1100
fax: (902)-365-3165
info@aroi.ca

Aroi Mortgage Investment Corporation