Down payment

Mortgage lenders require buyers to make a minimum contribution to their acquisition project. This initial contribution is called the down payment. The down payment is deducted from the purchase price of the property to determine the amount to be financed.

For properties under $500,000, the minimum down payment required is usually 5% of the purchase price.

For a property with a purchase price between $500,000 and $999,999, the minimum down payment is usually 5% of the first $500,000 of the purchase price, and 10% of the balance.

For a property with a purchase price over $1,000,000, the minimum down payment is usually 20% of the purchase price.

Lenders may require a different down payment amount than the above, to take into account other factors such as a poor credit history, or for the self-employed.

The down payment most often comes from the client’s savings, which can also take the form of amounts used under the Home Buyers’ Plan (HBP) or a First Home Savings Account (FHSA). These options are discussed in the Home ownership programs section.

It may be a good idea for the broker to remind the client that the size of the down payment has a major impact on the loan granted and other conditions:

• If the down payment is less than 20% of the loan amount, mortgage insurance is required.
• If the down payment is less than 20% of the loan amount, the maximum amortization period is limited to 25 years.
• The larger the down payment, the smaller the mortgage loan. This simple rule enables the buyer to pay less interest and spend less on the purchase of the property by the end of the amortization period.