How Your Down Payment Affects Mortgage Costs in Canada

A larger down payment usually means a smaller mortgage. That part is simple. The less obvious part is that your down payment can also determine whether you need mortgage loan insurance, how much cash you need at closing, and what your payments look like for years afterward.

For many Canadian buyers, the decision is framed as “Put down the minimum or wait until I have 20%?” There is no universal answer. Waiting may reduce borrowing costs, but it may also delay a purchase and leave more savings tied up in the home. To make a useful comparison, you need to understand what changes at each down payment level.

Why lenders care about the down payment

A mortgage is secured against the property. If a borrower stops making payments and the lender must sell the home, the sale proceeds may not cover the outstanding loan and related costs. A down payment gives the lender some protection against that shortfall because the loan starts out smaller than the purchase price.

When your down payment is less than 20% of the purchase price, lenders generally require mortgage loan insurance. This is also called mortgage default insurance. It protects the lender if the borrower defaults. It does not pay your mortgage for you if you lose your job or become ill, and it is different from life or disability insurance.

The lender arranges the default insurance with an insurer, such as the Canada Mortgage and Housing Corporation (CMHC). Although the lender is protected, the cost is typically passed on to the borrower. That is why a down payment below 20% can affect your costs in two ways: you borrow more to buy the home, and you pay an insurance premium.

How much do you need to put down?

For a home that qualifies for an insured mortgage, Canada’s minimum down payment is based on the purchase price:

• For a purchase price of $500,000 or less, the minimum is 5%.

• For a purchase price above $500,000 but below $1.5 million, the minimum is 5% of the first $500,000, plus 10% of the amount above $500,000.

For example, the minimum down payment on a $500,000 home is $25,000. On a $750,000 home, it is $50,000: $25,000 for the first $500,000, plus $25,000 for the remaining $250,000. On a $1 million home, the minimum is $75,000.

Notice that the minimum on a $750,000 purchase is less than 10% of the full price. The 10% rate applies only to the portion above $500,000.

A minimum down payment is not a guarantee of mortgage approval. The lender will still assess your income, debts, credit, property, and ability to carry the payments. You also need money for closing costs, which are separate from the down payment.

What happens at the $1.5 million limit?

The maximum purchase price or lending value for a homeowner mortgage insured under the stated program rules must be below $1.5 million. At $1.5 million or more, buyers generally need at least 20% down because the standard insured option is unavailable. On a $1.5 million purchase, that is $300,000.

The distinction between “below” and “at” matters if your search is near the limit. A small change in purchase price can make a large difference to the cash required. Confirm the financing rules before making an offer rather than assuming you can adjust the down payment afterward.

What mortgage loan insurance costs

Mortgage loan insurance is priced as a premium, generally calculated as a percentage of the mortgage amount. The percentage depends on factors including the size of your down payment. In general, a smaller down payment means a higher premium rate because the lender is taking on a larger loan relative to the property’s value.

Borrowers typically have two ways to pay the premium. You can pay it up front, or you can add it to the mortgage and repay it through your regular payments. Rolling it into the loan makes closing easier on your cash reserves, but you then pay interest on that premium as part of the mortgage balance.

Here is a simplified comparison. Suppose you buy a $600,000 home and consider two down payments:

Minimum down payment20% down paymentCash down$35,000$120,000Mortgage before any insurance premium$565,000$480,000Borrower-paid default insuranceGenerally requiredGenerally not required

For this purchase, the $35,000 minimum is 5% of the first $500,000 ($25,000), plus 10% of the next $100,000 ($10,000).

If the insurance premium in this illustration were 4% of the $565,000 mortgage, it would be $22,600. Adding it to the mortgage would bring the starting balance to $587,600. The actual premium must be confirmed for the specific mortgage; the assumed rate here is for comparison, not a quote.

At an illustrative 5% interest rate and a 25-year amortization, monthly principal-and-interest payments would be about $3,435 on $587,600, compared with about $2,806 on $480,000. Actual payments depend on your rate, amortization, payment frequency, and mortgage terms. Property taxes, utilities, and other ownership costs are not included.

The higher monthly payment is not all an insurance expense. Much of the difference comes from borrowing more because you put down $85,000 less. Still, the premium increases the starting loan balance, and interest adds to its long-term cost if you finance it.

Twenty percent down does not answer every cost question

Putting down 20% generally avoids borrower-paid mandatory default insurance and reduces the amount you borrow. Those are real benefits. Yet using nearly all your savings to reach that threshold can create a different problem: too little cash left for moving, repairs, or an emergency.

A buyer might also choose to keep money available for another purpose, such as an investment or a planned expense. That choice involves risk. The interest saved on a smaller mortgage is relatively predictable under the mortgage terms; investment returns are not.

There can also be differences in interest rates between insured and uninsured mortgages. A lower advertised rate on an insured mortgage does not, by itself, mean the lower-down-payment option costs less. Compare the rate, premium, loan balance, and cash required together.

Closing costs can surprise buyers focused on the down payment

The down payment is only one amount you need to have ready for closing. Legal fees, title insurance, inspections, adjustments, and applicable land transfer taxes may also need to be paid. The mix varies by province and transaction. Buyers in Ontario, for example, face different land transfer tax rules than buyers in Alberta or BC.

Some provinces also charge sales tax on mortgage insurance premiums. Where applicable, that tax may have to be paid at closing even if you add the premium itself to the mortgage. Ask your lender and closing professional what must be paid in cash for your particular purchase.

This is worth checking early. If you have exactly enough saved for the minimum down payment, you may not yet have enough to close.

Where can a down payment come from?

Personal savings are a common source, but they are not the only possibility. Depending on your eligibility and the lender’s rules, down payment funds may come from an RRSP withdrawal, a non-repayable gift from immediate family, or proceeds from selling another property. Some financing arrangements may allow funds borrowed against proven assets, subject to lender and insurer requirements.

The source matters because lenders need to verify the money and understand whether you must repay it. A family gift, for instance, generally needs documentation confirming that it is a gift rather than a loan. Borrowed funds may add a monthly obligation that affects how much mortgage you qualify for.

Eligible first-time buyers may also consider the Home Buyers’ Plan for RRSP withdrawals or the First Home Savings Account. These programs have separate rules. Before moving money, check contribution or withdrawal eligibility, tax treatment, and any repayment obligations. A tax-advantaged account can help you assemble a down payment, but it does not change the lender’s affordability assessment.

Property type and intended use matter too

The down payment calculation is only part of insured mortgage eligibility. Insured financing can apply to more than a detached house, including eligible condominiums, duplexes, and certain manufactured homes. Some rental and retirement housing properties may qualify under specific programs.

But do not assume that rules for a home you will live in also apply to a property bought mainly as an investment. Program conditions can differ by property type and use. The stated maximum for small rental loans is $1 million, compared with the below-$1.5-million limit for homeowner insured loans. A lender can tell you which insurance program, if any, fits the property you are considering.

This is especially relevant when comparing a condo you plan to occupy with a rental property at a similar price. The purchase prices may match, while the available financing does not.

If you move later, can you keep an insurance benefit?

You may hear the word portability when discussing a future move. It can refer to moving your mortgage to a new property, but mortgage loan insurance portability is a separate question.

If your mortgage loan was insured on or after April 1, 1996, you may be eligible to transfer an insurance benefit when buying another home. Depending on the circumstances, this could reduce or eliminate the premium on a new insured loan. It is not automatic. Timing, the new property, the new loan amount, insurer rules, and lender terms can all affect the result.

If you already have an insured mortgage and expect to move, ask about portability before you sell or commit to a new purchase. Also ask whether you can port the mortgage itself, what rate and terms would apply, and whether there would be a penalty to break your current loan. Similar-sounding options can have different financial consequences.

A practical way to compare your options

Start with a purchase price that fits your budget, then calculate both the minimum down payment and 20% down. For each option, ask for a mortgage estimate that includes the insurance premium, if one applies. Compare the cash needed at closing and the resulting monthly payment.

Next, look beyond the payment. How much savings would remain after closing? Would you still have room in your budget if a condo fee rose, a repair came up, or another expense changed? A mortgage can be approved and still feel uncomfortably tight.

Finally, confirm the details with the lender before treating an estimate as a plan. Ask whether the mortgage will be insured, which insurer and program apply, how the premium will be paid, and whether the property meets program limits. The lender arranges the insurance, but you should understand how it appears in your borrowing costs.

The useful question is not simply whether you can put down 20%. It is what each down payment leaves you with: a mortgage balance, a payment, closing cash requirements, and savings for life after you get the keys.