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Mortgage Down Payment in Canada

Your guide on how to finance a mortgage down payment.

Mortgage down payment

A mortgage down payment is the money you commit to the purchase of a property, paid upfront. It is expressed as a percentage of the property price, with 5% being the minimum requirement. For mortgage down payments less than 20% CMHC Insurance is required, which is normally added to the mortgage amount. Premiums are calculated as a percentage of the property price and vary for mortgage down payments of 5% - 9.99%, 10% - 14.99% and 15% - 19.99%. The greater the mortgage down payment the less of an insurance premium you’ll have to pay.

Different property types have distinct mortgage down payment requirements. For example, a single-family home must have a down payment of 5%; a rental property and a property costing more than $1 million must have a down payment of 20% and a property with 5 or more units must have a down payment of 15%.

A mortgage down payment helps you determine the maximum cost of property that you can afford. By dividing the mortgage down payment you have saved by the minimum down payment requirement helps you figure out how much you can afford to spend on a property. The larger the down payment the more you can spend on the property.

Traditional mortgage down payment sources

  1. Personal savings: The most common source of mortgage down payment is your savings. This can include money in your chequing/savings accounts, Tax Free Savings Accounts (TFSAs), GICs, stocks, or other types of investments.
  2. RRSP: You may withdraw up to $25,000 from Your RRSP as a first-time homebuyer. The RRSP Home Buyers’ Plan lets you withdraw the money tax free, as long as the full amount is repaid back into the plan within 15 years. To qualify the funds must be in your RRSP for at least 90 days. If you are a first time homebuyer and have available contribution room it could make sense to use the savings for your mortgage down payment to make an RRSP contribution. Since you’ll be purchasing a property you will be able to withdraw the funds from your RRSP for your mortgage down payment as well as receive a refund as a result of your contribution.
  3. Funds borrowed against proven assets
  4. Sweat equity (<50% of minimum required equity) for self-constructed property
  5. Land unencumbered
  6. Proceeds from the sale of another property
  7. Non-repayable gift from immediate relative: You can use funds that are given to you as a gift from your parents, grandparents or siblings. A gift letter will have to be signed by the family member providing the gift that confirms that the money will not have to be repaid.
  8. Equity grant (non-repayable grant from federal , provincial or municipal government

Non-traditional mortgage down payment sources:

Any source that is arm’s length to and not tied to the purchase or sale of the property, such as:

  • Borrowed funds

The borrower must have good credit and adequate income to be able to borrow funds for the mortgage down payment

  • Gifts not from immediate relatives
  • Lender cash back incentives

Using non-traditional mortgage down payment options will result in a higher CMHC insurance premium for mortgage down payments 5% to 9.99%.

Source: Canada Mortgage and Housing Corporation (CMHC)

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