If you’re reading this, you’ve probably come across the news that prices of down payments in Canadian cities have skyrocketed over the past year. As CTV News reports, in 2021, housing affordability has worsened by the widest margin in nearly 30 years.
But despite all of this, many Canadians are still out there buying properties. Whether you’re buying your first home or owning multiple properties, you know that the buying process starts with saving for a down payment.
To help you start, here’s everything you need to know about down payments in Canada.
How Minimum Down Payment Works in Canada
When a down payment is mentioned, people usually think of the minimum amount you must pay as a deposit. However, the term mortgage down payment covers different deposits with varying credit conditions.
The Loan-to-Value Ratio (LTV) is how much of your home’s price is paid by the mortgage. Most mortgage lenders use this insurance to keep themselves safe even when they don’t have collateral.
The minimum mortgage down payment in Canada ranges from 0% to 20%. In addition, all high-ratio mortgages require mortgage default insurance, which protects against losses in case of borrower default, death, or disability.
The amount you put down will affect the mortgage rate and mortgage payment. For example, if you put down a mortgage down payment of less than 20%, there will be mortgage insurance fees.
The mortgage insurance premium is payable to the mortgage insurer, the Canada Mortgage and Housing Corporation (CMHC), or Genworth Financial Canada Ltd. This amount is usually included in your monthly mortgage payment. Exclusions from mortgage insurance include:
- Mortgages with down payments of 20% or greater
- Mortgage refinancing
- Mortgage renewals
Different Types of Minimum Down Payments
Though mortgage down payment is usually used interchangeably with mortgage insurance, there are also different types of mortgage down payments.
Cash Committed Mortgages
If you need a mortgage loan but don’t have the minimum 20% mortgage down payment, your mortgage advisor can help you get a cash-committed mortgage loan. A cash-committed mortgage loan requires mortgage insurance because the loan amounts are greater than 80% of the property’s value.
A cash-committed mortgage loan requires mortgage insurance because the loan amounts are greater than 80% of the property’s value.
Lender Mortgage Insurance (LMI)
If you plan to borrow more than 80% of your home’s price and can’t meet mortgage down payment requirements, it will be an interest-only mortgage with mortgage default insurance. That means mortgage insurance premiums must be paid with interest charges until the mortgage is paid off, or mortgage down payment can be increased to 20% or more of the home’s value.
CMHC Mortgage Loan Insurance Premium (CMHC MIP)
If you need mortgage financing and cannot make a minimum 5% mortgage down payment, you can apply for mortgage loan insurance with the Canada Mortgage and Housing Corporation (CMHC. The CMHC mortgage loan insurance premium is payable to mortgage default insurance.
National Housing Act Mortgage Loan Insurance Premium (NHA MIP)
The National Housing Act mortgage loan insurance premium is payable to mortgage insurer Genworth Financial Canada Ltd., on mortgage loans with mortgage rates more than the mortgage down payment.
Mortgage Loan Insurance Premium (MIP)
The Canada Housing and Mortgage Corporation (CHMC), a mortgage insurer under the National Housing Act, operates as Canada Guarantee. This mortgage insurance premium is payable to mortgage insurer Genworth Financial Canada Ltd., on mortgage loans with mortgage rates more than the mortgage down payment.
How Much Mortgage Down Payment Do I Need?
You don’t need to pay a 20% mortgage down payment to get a mortgage loan, but you must avoid borrowing more than 80% of your home’s value. You can calculate this by taking your property value and subtracting the mortgage down payment.
Different mortgage lenders have different mortgage rates and insurance premiums for mortgage down payments. You can lower your monthly mortgage rate by making mortgage down payments of more than 5% of the home’s value, e.g., 10%, 15% or 20%.
Time You Need to Save Up for a Down Payment
You need to consider how much time you need to save up for a down payment. Luckily, the National Bank of Canada recently released a report outlining how much time people need to save money to make the first down payment.
If you saved 10% of your pre-tax household income, it would take you slightly under six years – or 69 months – enough to save for a down payment on a typical Canadian home. As at this time last year, there had been 57 months of saving at the same rate.
Putting away 10% of your household’s pre-tax income may take decades in Vancouver, Victoria, and Toronto.
Average Down Payments by Province
Next, you need to realize that your down payment vastly varies from province to province. That can help you determine how much money you’ll need for a down payment on a house in your area based on the average price of homes in your area.
Here are the average don payments in Canadian provinces, according to the latest Real Estate & Housing Market Forecast report:
- British Columbia: The average down payment in British Columbia is $159,762.64, or 22.5% of the purchase price of a property.
- Ontario: Ontario homebuyers, on average, make a larger down payment than residents of any other province (aside from British Columbia).
- Quebec: According to first-quarter data, Quebec residents made the smallest down payment on a home, with an average of less than 15%.
- Alberta: The average down payment in Alberta was $62,929.45, making it the second-lowest in the test markets, behind only Quebec’s 15.15 percent.
- Nova Scotia: The average down payment in Nova Scotia is 18.54 percent ($57,781.46), the lowest among the test markets at $363,330.
The mortgage down payment is the cash a home buyer needs to pay as a deposit on a mortgage. Mortgage insurance reduces this for buyers who can’t complete a down payment. Depending on mortgage rates and insurance premiums, you can calculate mortgage down payments in Canada.
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