Buying a Home: What Percentage Should I Put Down?
Ready to buy a home? Find out how much of a down payment you need to make to get into the world of real estate.
A Quick Math Lesson
The down payment is the amount of money you put towards the purchase of a property from your own funds, which will eventually be deducted from the purchase price to determine the mortgage you will need. The minimum down payment depends on the price of the house you want to buy.
Minimum Down Payment for a Home
- for the purchase of a house under $500,000: 5 per cent of the purchase price
- for the purchase of a house from less than $500,000 to $999,999: 5 per cent of the first $500,000 of the purchase price and 10 per cent of the remainder of the purchase price over the first $500,000
- for the purchase of a home over $1,000,000:20 per cent of the purchase price
Obviously, your down payment has a strong impact on the total cost of your mortgage. The larger your down payment, the smaller your mortgage loan will be. It will therefore have an impact on the repayments you will have to make as well as on the interest you will have to pay to your financial institution. Then, it’s up to you to choose what suits your situation: having smaller monthly payments or paying off your loan faster, while at the same time reducing the interest you incur.
Important Information
For the purchase of an investment property (duplex, triplex, etc.), the down payment required may be different. Find out more before taking the first steps.
A higher down payment may be required in certain cases: If you are self-employed, if your income does not qualify in the calculations, or if you have a poor credit history.
Mortgage Loan Insurance
If your down payment is less than 20 per cent of the sale price, you will need mortgage loan insurance. It is calculated as a percentage of the loan - ranging from 0. 6 per cent to 4. 5 per cent - and varies depending on the amount of your down payment. The larger your down payment, the lower the premiums you will pay. See this chart for more details. You can choose to pay the premium in one lump sum or add it to your mortgage. If you add it to your mortgage, you must pay interest at the same rate as your mortgage on the premium. Also, be aware that in Quebec, the premium is subject to provincial tax and cannot be added to the loan amount.
In short, preparing your down payment is certainly a crucial step as soon as you start thinking about buying a home. What’s next? It will lead you to other important steps, such as getting pre-approved for a mortgage, so you’re totally ready to buy!
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