Mortgage Down Payment

If you choose to purchase a home using a mortgage, you need to pay a down payment on the house. This is the amount of money you pay toward the house up front, and the mortgage loan will cover the rest of the cost. The larger down payment you make, the less interest you will pay over the course of your mortgage.

The size of the down payment will determine what kind of mortgage you qualify for. In Canada, there are two kinds of mortgages: conventional and high-ratio.

A conventional mortgage means that your down payment was 20 percent of the price of the house or higher. A high-ratio mortgage means that your down payment was less than 20 percent of the purchase price, although some credit unions will allow a conventional mortgage with a 15 percent down payment.

High-ratio mortgages need to be insured by the Canadian Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, or Canada Guarantee. There is also a premium for this insurance that you can either pay at the time of purchase or it can be added to the principal amount of your mortgage. The insurance premium will depend on the amount of money you are borrowing, as well as the percentage of your down payment.

As of February 2016, the minimum amount for down payments has been altered. Now, a home worth less than $500,000 requires a minimum down payment of five percent; a home worth between $500,000 and $1 million has a minimum down payment of five percent of the first $500,000 plus 10 percent of the remaining house balance; and a home worth more than $1 million has a minimum down payment of 20 percent.

If you have savings in your RRSP fund, you can use that money toward a down payment on a house, which is called the First Time Home Buyers Plan in Canada. Normally, withdrawal from your RRSP is taxable, but the taxes are negated if you are using the money for a down payment. The First Time Home Buyers Plan has many rules and regulations so if you plan on using the plan, get in touch with a mortgage specialist.