When you’re buying a home in Canada, your down payment is one of the biggest upfront costs. It’s the amount you pay out of pocket, and it affects your mortgage, interest, and even the kind of property you can buy.
Here’s a breakdown of your main options.
Minimum Down Payment
In Canada, your minimum down payment depends on the price of the home:
- 5% for homes up to $500,000
- 10% on the portion between $500,001 and $999,999
- 20% for homes $1 million and over
If your down payment is under 20%, you’ll need mortgage default insurance. This adds to your monthly cost but allows you to buy with less money up front.
RRSP Home Buyers’ Plan
If you’re a first-time homebuyer, you can pull up to $60,000 from your Registered Retirement Savings Plan (RRSP) without paying tax on the withdrawal. You’ll need to repay it over 15 years, starting the second year after your purchase. This option gives you access to your own savings without needing a full cash withdrawal.
First Home Savings Account (FHSA)
This is a newer option. You can contribute up to $8,000 per year (up to $40,000 total) into a tax-free FHSA. You get a tax deduction when you contribute, and withdrawals for a home purchase are also tax-free. You can combine this with the Home Buyers’ Plan.
Gifts from Family
You can use a gifted down payment from an immediate family member. Lenders usually want a signed letter confirming the money is a gift and doesn’t need to be repaid. You’ll need to show this before final approval.
Borrowed Funds or Line of Credit
In rare cases, you can borrow your down payment. Some lenders allow it, but they’ll factor that debt into your application. This can limit your mortgage approval. It’s usually only an option for buyers with strong income and credit.
Cash Savings
If you’ve saved up the money in a regular savings or TFSA account, you can use that for your down payment too. It’s the most straightforward option. Lenders will want a 90-day history of the account to confirm the funds are yours.
Make sure you understand the impact of your down payment size. It affects your loan amount, monthly payments, and insurance costs.
Want to get clear on what works best for your budget? Talk to your mortgage broker early so you can plan ahead. Also, your REALTOR® has the resources and connections to lead you in the right direction!
