MORTGAGE & REAL ESTATE INSIGHT
Yesโbut your down payment is only one part of the cash you will need.
Many GTA buyers believe they must save a 20% down payment before purchasing a home.
That is not always true.
You may be able to buy with much less than 20% downโas long as the property price is below $1.5 million and you qualify for the mortgage. However, you also need to budget for mortgage insurance, closing costs and other expenses.
Here is a simple breakdown.
How Much Down Payment Do You Need?
Canadaโs minimum down-payment rules are based on the purchase price:
- $500,000 or less: Minimum 5%
- More than $500,000 but less than $1.5 million: 5% on the first $500,000 and 10% on the remaining amount
- $1.5 million or more: Minimum 20%
The calculation is easier than it sounds.
Example: Buying for $700,000
Your minimum down payment would be:
Total minimum down payment: $45,000
- 5% of the first $500,000 = $25,000
- 10% of the remaining $200,000 = $20,000
Here are a few more examples:
- Purchase price| Minimum down payment
- $500,000| $25,000
- $700,000| $45,000
- $900,000| $65,000
- $1,200,000| $95,000
- $1,500,000| $300,000
These are minimum amounts. A larger down payment can reduce your mortgage and monthly payment.
What Is Mortgage Default Insurance?
If you put down less than 20%, you will normally need mortgage default insurance.
๐ง๐ต๐ถ๐ ๐ถ๐ป๐๐๐ฟ๐ฎ๐ป๐ฐ๐ฒ ๐ฝ๐ฟ๐ผ๐๐ฒ๐ฐ๐๐ ๐๐ต๐ฒ ๐น๐ฒ๐ป๐ฑ๐ฒ๐ฟโnot the homeowner.
The premium is based on the size of your down payment. With a minimum down payment, the premium can be as high as 4% of the mortgage amount.
For example, on a $700,000 home with $45,000 down:
- Mortgage before insurance: $655,000
- Estimated insurance premium at 4%: $26,200
- Total mortgage after adding the premium: approximately $681,200
The premium can usually be added to your mortgage, so you may not have to pay the entire amount upfront.
However, in Ontario, the provincial sales tax charged on the insurance premium must normally be paid in cash at closing. In this example, that tax would be approximately $2,096.
Donโt Forget Closing Costs
This is where some buyers get surprised.
๐ฌ๐ผ๐๐ฟ ๐ฑ๐ผ๐๐ป ๐ฝ๐ฎ๐๐บ๐ฒ๐ป๐ ๐ถ๐ ๐ป๐ผ๐ ๐๐ผ๐๐ฟ ๐๐ผ๐๐ฎ๐น ๐ฐ๐ฎ๐๐ต ๐ฟ๐ฒ๐พ๐๐ถ๐ฟ๐ฒ๐บ๐ฒ๐ป๐.
Closing costs may include:
- Ontario land transfer tax
- Toronto municipal land transfer tax, if the home is in Toronto
- Lawyer and registration fees
- Title insurance
- Home inspection
- Property-tax adjustments
- Appraisal or lender-related fees
- Sales tax on the mortgage-insurance premium
- Moving costs and immediate repairs
First-time homebuyers may qualify for land-transfer-tax rebates, but these rebates may not remove the full cost.
A common planning guideline is to save approximately 1.5% to 4% of the purchase price for closing costs. The actual amount depends on the property, location and available rebates.
What Does the Real Cash Number Look Like?
Consider that $700,000 home again:
- Minimum down payment: $45,000
- Estimated closing costs: $10,500 to $28,000
- Approximate cash required: $55,500 to $73,000
For a $900,000 home:
- Minimum down payment: $65,000
- Estimated closing costs: $13,500 to $36,000
- Approximate cash required: $78,500 to $101,000
These are broad planning estimatesโnot quotes. A Toronto property may have higher land-transfer taxes, while a qualifying first-time buyer may receive helpful rebates.
Also remember that the deposit submitted with your offer is usually credited toward your down payment. It is not normally an extra cost, but you may need to provide it quickly after your offer is accepted.
