Minimum Down Payment Requirements in Canada
In Canada, the rules regarding down payments are designed to make homeownership accessible while also managing financial risk. Here’s a breakdown of the minimum down payment requirements:
5% for Homes Priced Under $500,000:
For homes that cost less than $500,000, the minimum down payment is 5% of the purchase price.
For example, if a home is priced at $400,000, the buyer would need to put down at least $20,000 (5% of $400,000).
10% for the Portion Above $500,000:
For homes priced above $500,000, the minimum down payment is structured differently. Buyers must pay 5% on the first $500,000 and 10% on any amount over that.
For instance, if a home costs $600,000:
The first $500,000 requires a 5% down payment: 5\% \times 500,000 = $25,000.
The remaining $100,000 requires a 10% down payment: 10\% \times 100,000 = $10,000.
Total down payment: 25,000 + 10,000 = $35,000.
Key Points:
Mortgage Insurance: If your down payment is less than 20%, you’ll need to pay for mortgage default insurance, typically through the Canada Mortgage and Housing Corporation (CMHC). This protects lenders in case the borrower defaults on the loan.
Impact on Borrowing: A larger down payment generally means lower monthly mortgage payments and can help avoid additional costs like mortgage insurance.
These rules encourage homeownership while ensuring that buyers have some equity in their homes from the start.
