When you are buying a home, the first payment to be made is used to start the buying process and reserve the house in your name. This is down payment. The bigger the down payment, the less you will need to borrow leading to an overall decrease in your mortgage costs. Down payment is upfront when purchasing a home and is usually expresses as a percentage of the home price. This percentage is the dollar value of the divided by the home price.

Minimum Down Payment Requirement for Canadians

The typical down payment varies from 5% to 20% if you are buying a home in Canada.  Nearly 30% of Canadian home buyers prefer putting up large down payments of at least 20%. This is the point where mortgage default insurance becomes redundant, decreasing their mortgage payments.

According to the latest rules and regulations, if you want to buy a buy home with its market price upwards of $ 1 million, the minimum down payment will be 20% of its price. This is a conventional mortgage as the down payment is 20% or higher.

CMHC insurance, also called mortgage default insurance, has been out into practice to protect the lender in case the borrower defaults on their mortgage payments. Therefore, it is a mandatory requirement on all mortgages that have a down payment of less than 20%. This is called a high ratio mortgage.

Conventional Vs. High-Ratio Mortgage

If you can’t afford to pay 20% down payment, then you still may be able to buy a smaller, less expensive home for as little as 5% down payment. But remember that the amount will determine whether you qualify for a conventional or a high ratio mortgage that needs to be insured and costs a lot more in the end.

It should also be noted here that high-ratio mortgages are expensive because these have to insured by an acceptable party such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty.

The insurance premium payable to these entities depends on the amount being borrows and down payment percentage. You have the choice to either have it added to the principal balance so it can be paid off as a part of the mortgage, or you may decide to pay it off in a lump sum at the time of purchase.

Your Down Payment Influences These Factors

The amount of upfront down payment for the purchase of a house has some serious consequences for the following factors:

The home price you can afford: If you want a bigger house then what your current financial status would allow, you will need to give a 20% down payment readily.

The size of your mortgage and monthly payment: Large down payments help reduce your overall mortgage and mortgage payments. These also help decrease the size of the interest you need to pay over the mortgage’s life.

The amount of CMHC insurance you pay: This is calculated as a percentage of the full mortgage amount and it gets smaller as the size of your down payment increases.