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What's the difference between a deposit and a down payment on a house?
KEY FINDINGS
- A home deposit and a down payment are not the same thing—the deposit is applied toward your down payment when buying a home.
- Most Canadian homebuyers make a deposit of at least 5% of the purchase price to demonstrate they are serious and financially qualified.
- The minimum down payment is 5% for homes under $500,000, while properties priced at $1.5 million or more require at least 20% down.
- If your down payment is less than 20%, you'll generally need mortgage default insurance, which can add 0.60% to 4.5% to your mortgage amount.
Updated on July 15, 2026 by Arshi Hossain | Originally written: January 8, 2024 by Gary Hilson
A down payment is an upfront amount of the cost of a home required at the time of purchase, while a deposit is a much smaller sum of money that signals your intention to buy a property. Both require substantial sums of money and must be accounted for in your home purchasing budget, along with the cost of home insurance. However, it’s important to note that they are different and distinct.
What is a home deposit?
A home deposit is a sum of money you submit with your offer to purchase a property. It signals to the seller that you're a serious buyer and that your finances are in order.
Renters are no strangers to deposits. Typically, when you sign a lease on an apartment, your new landlord will ask you for a security deposit. This deposit is equivalent to your last month’s rent, even though you may have not planned your next move.
Unlike a rental security deposit, you don't get this money back directly. Instead, it's applied toward the down payment on your home purchase when the deal closes.
Once the seller accepts your home purchase offer, your deposit is held in trust by the seller’s real estate brokerage until closing. At that point, it becomes part of your down payment. These deposits usually take the form of certified cheques, bank drafts, money orders, or electronic transfers.
In the rare and extreme case that you have a dispute with the seller, they can hold onto your deposit or keep it to account for damages, but they can’t just take the money and run. An Agreement of Purchase and Sale is a legal document that outlines all conditions of your home purchase. It’s important to read this document carefully and understand all its terms. If you have any doubts, you should consult a real estate attorney or professional.
Related: Looking for a new home? Why you need to pre-qualify first
How much is a deposit amount?
Most buyers will want to make a deposit that’s at least 5% of the purchase price, as it tells the seller your finances are in order. The higher the deposit, the more attractive and serious your offer could appear for the home, especially when seller receives multiple offers. The exact amount paid is typically guided by the home’s purchase price and how quickly you plan to close.
Does a home deposit earn interest?
Yes, if it's specified in your Agreement of Purchase and Sale, your deposit will accumulate interest while held in trust. That interest is applied to your down payment along with the original deposit amount when the sale closes.
What happens to your deposit if the deal falls through?
In most cases, you forfeit your deposit if the sale doesn’t close. However, there are some exceptions. You can outline conditions in your Purchase and Sales Agreement when submitting your offer:
- Home inspection contingency: A condition that the property passes inspection. Should it fail, you may get your deposit back.
- Subject to financing clause: If your mortgage isn't approved within the specified timeframe, this clause protects your deposit.
If you simply change your mind about buying, you’ll likely lose your deposit and could also face legal action from the seller for any potential damages they incur.
Related: What’s the “buyer beware” principle when it comes to buying a home?
What is a down payment?
A down payment is the portion of the home’s cost that you pay upfront to finalize the purchase of a home once the seller agrees to your offer. The remaining amount is covered and paid through your mortgage.
The down payment is paid the day the sale of the house closes and includes your deposit amount when you placed a purchase offer.
For most first-time home buyers, it represents years of tight budgeting and saving. Mortgage lenders will also want to know the source of your down payment.
Related: Dos and don’ts when getting mortgage from a private lender
How much is your down payment?
Homeowners need a 5% minimum down payment to finance a home with a mortgage, but 20% is ideal for a conventional mortgage. Otherwise, your mortgage may be classified as high-ratio, and you’ll have to purchase mortgage insurance.
Here’s a breakdown for how much you’ll have to pay depending on the price of the home:
| Home purchase price | Minimum down payment required | How it's calculated |
|---|---|---|
| $500,000 or less | 5% | 5% of the home's purchase price |
| Above $500,000 to $1.5 million | 5% on the first $500,000 and 10% on the remainder | Calculate 5% of the first $500,000, then add 10% of the amount above $500,000 |
| $1.5 million or more | 20% | A minimum 20% down payment is required under CMHC mortgage insurance guidelines |
Source: Government of Canada; Canada Mortgage and Housing Corporation (CMHC)
Related: How much mortgage can the median household income afford in these cities?
What are your payouts of a deposit vs. down payment?
A deposit is part of your down payment—not in addition to it and amounts can be vastly different for more expensive homes. Here are examples of how the numbers break down on purchase prices:
| $500,000 | $750,000 | $1,000,000 | |
|---|---|---|---|
| Deposit (5%) | $25,000 | $37,500 | $50,000 |
| Minimum down payment | $25,000 | $50,000 | $75,000 |
| Remaining at closing | $0 | $12,500 | $25,000 |
So, if you put down a $37,500 deposit on a $750,000 home, you'd owe the remaining $12,500 of the down payment at closing—not an additional $50,000 on top. Your deposit is used towards minimum down payment at close of the sale.
Keep in mind this doesn't cover all closing costs. There are other closing costs including, but not limited to, land transfer taxes, home inspection fees, title insurance, property appraisal fee, home insurance, and any broker or legal fees.
Read more: The hidden costs of home buying
What is a mortgage loan insurance plan, and do you need it?
If you can’t make a down payment of at least 20% on a home priced under $1.5 million, mortgage default insurance is mandatory. In Canada, there are two private-sector providers, but most new home buyers will likely consider insurance offered by the Canada Mortgage and Housing Corporation (CMHC).
How much does CMHC mortgage insurance cost?
CMHC mortgage insurance costs between 0.60% and 4.5% of your total mortgage, depending on the size of your down payment and loan-to-value ratio.
The insurance premium is calculated as a percentage of your total mortgage amount, and it rises the more you borrow relative to the home's value. As a homebuyer, you can expect to pay between 0.60% and 4.5% of your total mortgage.
Premiums can be paid as a lump sum upfront or added to your mortgage loan payments. This insurance protects the lender if you default on your mortgage. While it adds to your borrowing costs, it enables buyers with less than a 20% down payment to qualify for a mortgage and helps support access to homeownership.
Read next: Is it smart to invest in property right now?
Compare Mortgage Rates
Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.
Here at Rates.ca, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.
Gary Hilson
Gary Hilson, Freelance writer
Gary Hilson is a Toronto-based freelance writer who has produced thousands of words for print and pixel about business and technology for a variety of publications and corporate clients. When he's not tapping on the keyboard, Gary collects comic books, attends live theater, constructs Lego, and buys books he always intends to read.
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