Buying With Less Than 20% Down vs. Waiting: A Canadian Homebuyer’s Guide

Saving a 20% down payment can feel like chasing a moving target. Your savings grow, but the price of the home you want may grow too. Buying sooner with a smaller down payment can shorten that wait, although it usually means paying for mortgage loan insurance and carrying more debt.

Neither choice is automatically better. A smaller down payment can be sensible when your income is stable, the payments are manageable, and you have money left for emergencies. Waiting can be the stronger option when you can reach 20% reasonably soon or when buying now would stretch your budget.

The useful question is: which option leaves you in a stronger financial position after accounting for borrowing costs, housing expenses, uncertainty, and cash reserves?

What Mortgage Loan Insurance Actually Covers

In Canada, a down payment below 20% generally requires mortgage loan insurance for an eligible home purchase through a federally regulated lender. The insurance protects the lender if you default. It does not cover your mortgage payments if you lose your job or become ill.

That distinction matters. Mortgage loan insurance is different from optional life, disability, or other payment-protection insurance associated with a mortgage.

By reducing the lender’s risk, mortgage loan insurance allows eligible buyers to finance up to 95% of a home’s purchase price. Insured mortgages can also have competitive interest rates, even though the buyer has a smaller down payment.

The insurer charges a premium, however. Lenders typically pass that cost to the borrower. A lower advertised mortgage rate does not necessarily mean a lower overall borrowing cost once the insurance premium is included.

Insurance also does not guarantee mortgage approval. Your lender still assesses your income, debts, credit history, and the property.

Start With the Minimum Down Payment Rules

For eligible purchases below $1.5 million, the minimum down payment depends on the purchase price:

Purchase priceMinimum down payment$500,000 or less5% of the purchase priceMore than $500,000 but less than $1.5 million5% of the first $500,000, plus 10% of the remaining amount$1.5 million or moreMortgage loan insurance is unavailable; standard financing generally requires at least 20% down

For example, the minimum down payment on a $700,000 home is $45,000: $25,000 on the first $500,000, plus $20,000 on the remaining $200,000.

This is the minimum down payment, not the total cash needed to complete the purchase. Legal fees, applicable transfer taxes, inspections, adjustments, and moving expenses need their own budget.

Property use matters too. These rules should not be assumed to apply unchanged to rental properties, unusual property types, or every financing arrangement. Confirm eligibility before making an offer.

Where Your Down Payment Can Come From

Common sources include personal savings, proceeds from selling another property, and a non-repayable gift from a relative. Lenders usually require documents that establish where the money came from.

Some insured mortgage programs accept borrowed down payments, such as unsecured personal loans or unsecured lines of credit. These arrangements have narrow conditions. They may be limited to owner-occupied one- or two-unit properties, loan-to-value ratios between 90.01% and 95%, and borrowers with strong credit management histories.

The borrowed funds must also meet arm’s-length requirements and cannot be tied improperly to the purchase transaction. Certain borrower categories and loan products are excluded.

Even when permitted, borrowing the down payment adds another payment to your budget. It can also reduce how much mortgage you qualify for. Treat it as extra debt, not as a shortcut around affordability.

How Much Does Mortgage Loan Insurance Add?

The premium is calculated as a percentage of the mortgage amount before the premium is added. Generally, a smaller down payment means a higher premium rate.

You can usually pay the premium upfront or add it to the mortgage. Adding it avoids a large immediate cash expense, but increases your mortgage balance. You then pay interest on that premium as well.

Consider a $600,000 purchase using illustrative standard insurance premiums for an eligible mortgage with an amortization of no more than 25 years:

Down paymentMortgage before insuranceIllustrative premiumMortgage if premium is added$35,000, the minimum$565,000$22,600 at 4.00%$587,600$60,000, or 10%$540,000$16,740 at 3.10%$556,740$120,000, or 20%$480,000No borrower-paid high-ratio premium generally required$480,000

These figures show why comparing only the down payment can be misleading. The minimum-down-payment buyer borrows $85,000 more than the 20%-down buyer before insurance. Capitalizing the premium increases that difference to $107,600.

Premium schedules depend on the insurer and mortgage circumstances. Longer amortizations or particular programs can change the cost. Where provincial sales tax applies to the premium, it generally must be paid separately rather than added to the mortgage.

Ask for a written breakdown of the premium, any applicable tax, the starting mortgage balance, and the payment. That makes the trade-off much easier to see.

When Buying Sooner Can Make Sense

Buying with less than 20% down can be reasonable when waiting would take several years and you can comfortably afford ownership now.

You begin repaying mortgage principal earlier. If property values rise, you also participate in that appreciation. But neither benefit should be confused with a guaranteed investment return. Early mortgage payments include substantial interest, and home prices can fall.

The Moving-Target Problem

Suppose you want a $600,000 home and have saved $90,000. You need another $30,000 to reach a 20% down payment.

If you save $15,000 a year and prices remain unchanged, you could reach that goal in roughly two years, before accounting for returns on your savings.

Now suppose the same type of home costs $660,000 two years later. The required 20% down payment becomes $132,000. Your savings may have reached $120,000, yet you are still short.

This illustrates a real risk in markets where prices rise faster than your savings. It does not predict that prices will rise. Buyers in Vancouver, Edmonton, or elsewhere need to examine their specific property type and neighborhood rather than assume a citywide trend will continue.

Insured Rates May Be Competitive

Insured mortgages sometimes have lower interest rates than comparable uninsured mortgages because the lender has protection against default.

That difference can offset part of the insurance cost, but the actual quotes matter. Compare similar terms, amortizations, prepayment privileges, and penalties. A slightly lower rate attached to a less flexible mortgage may not be the better deal if you expect to move.

What You Give Up With a Smaller Down Payment

The clearest disadvantage is more debt. At the same rate and amortization, a larger mortgage means a larger payment and more interest.

You also start with less equity. If prices decline and you need to sell, the sale proceeds might not cover the mortgage and selling costs.

For example, in the $600,000 minimum-down-payment scenario, the mortgage starts at $587,600 after the premium is added. The difference between the purchase price and the mortgage balance is only $12,400. Selling expenses could consume that amount even without a significant price decline.

This is particularly relevant if your employment, household needs, or location may change soon. A small down payment and a short ownership period can be an uncomfortable combination.

Homeownership also brings expenses that renters may not pay directly: property taxes, repairs, maintenance, home insurance, and potentially condo fees or special assessments. Mortgage approval alone does not establish that these costs will fit comfortably into your life.

When Waiting for 20% Can Be the Better Choice

Waiting is often attractive when the savings gap is manageable and reaching 20% will not take long.

You generally avoid the borrower-paid high-ratio insurance premium, start with a smaller mortgage, and have a larger equity buffer. Under comparable borrowing terms, that means lower payments and less interest.

Waiting can also give you time to reduce other debt, establish stable income, or decide where you want to live. Those improvements may matter more than entering the real estate market quickly.

Still, 20% should not become a goal that overrides every other financial need. Using nearly all your available cash to avoid an insurance premium can leave you vulnerable to a repair bill or income interruption.

A buyer with 20% down and no emergency savings may be less resilient than a buyer with a smaller down payment and a well-funded reserve. The right balance depends on the household, not on the percentage alone.

Compare Buying Now With Waiting on Equal Terms

A useful comparison needs two complete budgets, not simply an insurance quote beside a rent payment.

Calculate the Full Cost of Buying Now

Include the down payment, insurance premium, closing costs, and moving costs. Then estimate ongoing mortgage payments, property taxes, home insurance, maintenance, and any condo fees.

Separate mortgage principal from interest when evaluating costs. Principal repayment builds equity. Interest does not. At the same time, equity is not readily available cash for paying an unexpected bill.

Check what remains in savings after closing. If the plan depends on having no repairs, no employment disruption, and no other surprises, it needs more room.

Estimate the Actual Cost of Waiting

Include rent, renter’s insurance, and moving costs if another rental move is likely. Account for the amount you can realistically save each month.

Your down payment savings may earn interest or investment returns while you wait. Those returns are not equally predictable. Money needed for a near-term purchase generally calls for a different risk approach than long-term retirement investments.

Rent is a housing expense, but calling it “wasted money” oversimplifies the decision. Rent buys shelter and flexibility. Ownership has unrecoverable expenses too, including interest, taxes, maintenance, and transaction costs.

Test Several Price Scenarios

Compare buying now with waiting under flat, rising, and falling home prices. Use realistic mortgage quotes rather than assuming today’s rate will still be available later.

Also test a tighter household budget or a higher renewal rate. In Canada, the mortgage term is usually shorter than the amortization, so the initial payment is not necessarily your payment for the life of the loan.

The strongest plan works under more than one favorable assumption.

A Practical Decision Checklist

Before choosing, answer these questions:

1. How long would reaching 20% take if home prices stayed flat?

2. Can you afford ownership costs while continuing to save?

3. How much cash would remain after closing?

4. Are you likely to stay in the home long enough to absorb buying and selling costs?

5. How would a price decline, income interruption, or higher renewal payment affect you?

6. What do comparable insured and uninsured mortgage quotes show?

For buyers in BC, Alberta, or Ontario, local closing costs and property-specific expenses can change the answer considerably. A condo with substantial fees requires a different budget from a detached home with aging major systems.

Personalized advice is most useful when it connects the mortgage decision with the rest of your financial planning, including emergency savings, debt repayment, and long-term goals.

Choose a Sustainable Purchase, Not Just a Down Payment Target

Buying with less than 20% down exchanges an insurance cost and higher debt for earlier ownership. Waiting exchanges time and continued rental costs for a potentially smaller mortgage and more starting equity.

Either can be sensible.

Buy sooner when the full ownership budget is comfortable, your circumstances are reasonably stable, and adequate savings remain after closing. Waiting deserves serious consideration when 20% is within reach or buying now would leave little margin for error.

The best down payment is one that gets you into a suitable home without making the rest of your finances fragile.