Minimum Down Payment Rules in Canada

The minimum down payment Canada requires depends on the purchase price and follows a tiered rule. As of the current year, the rule is generally 5% on the first $500,000 of the price, 10% on the portion between $500,000 and $1.5 million, and 20% at or above $1.5 million. A down payment below 20% means the mortgage must be insured, and the lender applies the federal stress test when deciding how much you can borrow.

The tiered minimum down payment rule

The tiers are applied to portions of the price, not to the whole amount at a single rate. That distinction matters most for homes priced above $500,000, where the 10% tier applies only to the part above the first threshold. Homes at or above $1.5 million require 20% because mortgage default insurance is not available above that price. These thresholds can change, so confirm the current figures with your lender or on the CMHC and canada.ca websites.

When mortgage default insurance applies

If your down payment is below 20% of the purchase price, your lender will normally require mortgage default insurance, also called mortgage loan insurance. This protects the lender if you default, not you, and the premium is calculated as a percentage of the loan and usually added to your mortgage balance. The premium increases as your down payment shrinks, so a smaller down payment costs more over time. The default insurance guide explains how premiums are set, and the CMHC insurance calculator can estimate yours.

Because the insurance premium is added to the balance, it also increases the interest you pay. A buyer who puts down 5% rather than 10% may face a higher premium and a larger mortgage, even though the purchase price is the same.

How the down payment affects your mortgage

Your down payment reduces the amount you need to borrow and the interest you pay over the life of the loan. It also affects whether the mortgage is insured and whether the stress test applies at the insured rate. A larger down payment can lower your monthly payment, reduce your total interest, and sometimes improve the rate a lender offers. The trade-off is that money used for a down payment is not available for emergencies, so it is wise to keep a reserve rather than emptying your savings.

Run the numbers with the down payment calculator to see how different amounts change the mortgage and the payment. A small increase in the down payment can have an outsized effect on the total interest over a long amortization. The reason is that every dollar you put down is a dollar you do not borrow for decades, and the interest saved compounds over the whole amortization rather than just the first term.

Where the down payment can come from

Lenders generally accept savings, RRSP withdrawals under the Home Buyers' Plan, FHSA withdrawals, and gifts from an immediate family member, provided the source is documented. Borrowed funds are more complicated: some lenders allow them, others do not, and using a loan or line of credit for a down payment increases your debt and can affect your qualification. Always disclose the source to your lender and keep a paper trail.

If you are using a gift, the lender will usually ask for a letter confirming it is a gift and not a loan. The first-time buyer programs guide covers the savings plans that can fund a down payment.

Keep the paper trail from the start. Lenders and insurers can ask for proof of the down payment's source months after you apply, and a missing document at that stage can delay or derail an approval. Bank statements showing the funds accumulating over time are the easiest evidence to provide.

Down payment versus closing costs

The down payment is only part of the cash you need at closing. You should also budget for land transfer tax, legal fees, an appraisal, title insurance, and adjustments for property taxes and utilities. These closing costs are separate from the down payment and are often overlooked by first-time buyers, which is how a purchase that looked affordable becomes a cash-flow problem.

Estimate those costs with the closing costs guide and check the provincial tax with the land transfer tax guide. Keeping a reserve after closing is just as important as having enough for the down payment.

Common mistakes to avoid

• Applying the 5% rate to the entire price instead of to each tier.
• Spending every dollar on the down payment and leaving nothing for closing costs or emergencies.
• Assuming a 20% down payment removes all lender requirements, when income and credit still matter.
• Using borrowed funds without confirming the lender allows it.
• Forgetting that the insurance premium is added to the mortgage and accrues interest.

Another common error is waiting too long to buy while trying to reach 20%. In a rising market, the home may become less affordable faster than the savings grow, and a lower down payment with insurance can be a reasonable trade-off if the payment is manageable. Run both scenarios before you decide which path fits.

How to confirm the current rules

Down payment thresholds and insurance rules change, and a plan based on outdated figures can leave you short at closing. Confirm the current minimums with your lender, check the CMHC website for insurance details, and review the federal consumer guidance on canada.ca. If your situation is unusual, such as self-employment income or a gifted down payment, speak with a licensed mortgage professional before you make an offer.