What is the minimum down payment, and what does it change?

What the down payment represents

The down payment is the share of the purchase price you pay in cash, without borrowing. The rest is financed by a mortgage. The higher the down payment, the smaller the amount you borrow, and the larger the share of the property that is fully yours from day one.

The term “minimum down payment” exists because federal regulation sets a floor, which depends in particular on the price of the property. That floor is not a lender’s preference or a piece of advice: it is a rule that must be met for the loan to be granted. The exact amounts and thresholds can change, which is why this article quotes none.

To find them at the time you buy, CMHC publishes up-to-date information in its buying guides. The lender or broker will then check that your down payment meets the rule that applies to your specific purchase.

Insured or uninsured loan

When the down payment falls below a threshold set by regulation, the mortgage must be insured by a mortgage insurer. This is called an insured loan. Above that threshold, the loan can be uninsured, and the insurance is no longer mandatory.

This insurance protects the lender in case of default, not the borrower. Yet the borrower bears its cost. Many people discover this late: mortgage loan insurance does not replace life insurance or disability insurance.

The distinction between an insured and an uninsured loan does not only change the premium. It can also influence the conditions offered, eligibility rules and certain features of the loan, such as the maximum repayment period allowed. Always ask the lender which category your file falls into and what that means in practice for you.

What the insurance premium changes

When the loan must be insured, a premium is charged. It is calculated under rules published by the insurer and generally depends on the proportion of the price you borrow. The smaller the down payment, the larger the premium is likely to be.

The premium can be paid at the time of the transaction, but it is most often added to the loan balance. In that case you borrow slightly more than the price minus the down payment, and you pay interest on that extra amount for the full life of the loan.

There is also a detail specific to Quebec: the sales tax on the premium is not added to the loan. It generally has to be paid in cash at closing, which adds to your liquidity needs. Check this point with the lender and CMHC before setting your budget, rather than discovering it at the notary’s office.

The effect on the balance, the payment and your room to manoeuvre

A higher down payment sets off a chain of effects. The amount borrowed goes down, the payment may fall, and the interest paid over the life of the loan is generally lower. It can also reduce or eliminate the insurance premium.

Conversely, a small down payment lets you buy sooner, but leaves less margin if the market softens or your situation changes. The equity you hold in the property is thinner, which matters if you have to sell, refinance or renew on different terms.

This is not to say that one option is superior to another. Waiting to save more has a cost too: property prices move, your rent keeps being paid and your plans evolve. The right question is therefore not “what does the minimum allow?” but “what balance is sustainable for my budget, my job and my plans?” An authorized person can discuss it with you, with figures in hand.

Where the down payment can come from

Several sources are common, and each has its own rules:

• personal savings, held in a bank account or an investment;
• the First Home Savings Account (FHSA), whose qualifying withdrawals are not taxed under CRA conditions;
• the Home Buyers’ Plan (HBP), which lets you withdraw from your RRSP under conditions, with a repayment obligation spread over time;
• the TFSA, whose withdrawals are tax-free;
• a gift from a relative, accompanied by a gift letter.

Each source leaves a trail the lender will want to see. An RRSP withdrawal under the HBP, for example, follows specific deadlines and conditions, and missing the repayment schedule can have tax consequences.

The rules and limits are published by the CRA and Revenu Québec. Read them before withdrawing anything: a poorly planned withdrawal can cost more than it brings.

The proof the lender will ask for

The lender wants to make sure the down payment exists and that it is yours, or that it is legitimately given to you. This is not personal distrust: it is a verification duty that applies to every file.

Prepare in advance:

• recent statements for the accounts where the money sits;
• the savings history, to explain any large or unusual deposit;
• confirmations of withdrawals from your registered accounts, where relevant;
• a signed gift letter if part comes from a relative, stating that it is a gift and not a loan to be repaid.

Requirements vary from one lender to another. A sudden unexplained deposit is one of the things that most often slows a file down. If you receive money from a relative, or move savings from one account to another, keep a record of every movement. A clear and complete file avoids back-and-forth that, once an offer to purchase is on the table, can cost precious time.

Costs to plan on top of the down payment

The down payment is not the only sum to gather. Several costs come on top, and most are paid at closing:

• notary fees and disbursements for the deed of sale and the mortgage;
• land transfer duties, commonly called the “welcome tax”, calculated according to the municipality and the price;
• the pre-purchase inspection and, depending on the case, the appraisal required by the lender;
• adjustments for municipal and school taxes between seller and buyer;
• home insurance, required before you take possession;
• moving and the first purchases for the property.

These amounts vary with the price, the municipality and the file. They are rarely financed by the loan: you need liquidity beyond the down payment. Many buyers find themselves stretched at the last minute for precisely this reason. Have your notary and your lender estimate the whole before you sign an offer to purchase.

A hypothetical scenario

Imagine Camille and Mathieu, a fictional couple who want to buy a first property. They have saved together for several years and also receive a helping hand from a parent. They want to buy as soon as possible, assuming the required minimum is enough for them.

While preparing their file with a broker, they discover three things. First, their down payment falls below the threshold where insurance becomes mandatory, which adds a premium to the loan. Second, the tax on that premium must be paid in cash at closing. Third, their notary fees, transfer duties and inspection add up to a sum they had not planned for.

They decide to push the purchase back slightly to save more, to document the gift they received and to ask for a written estimate of all costs. This situation is entirely invented: it illustrates a process, not an outcome. Another family, with a different income and different goals, would reach a different conclusion, which is exactly why personalized advice remains necessary.

Mistakes to avoid

A few traps come up regularly among buyers:

• confusing “minimum allowed” with “recommended amount”: the regulatory floor is a limit, not a target;
• forgetting closing costs and the tax on the premium, and arriving at the notary short of cash;
• withdrawing from a registered account without checking the tax consequences or the repayment schedule;
• receiving a gift without a letter and without a paper trail, which can block the file;
• keeping no reserve after the purchase, when owning a property brings unexpected expenses;
• applying for additional credit mid-process, which can change the borrowing capacity the lender assesses;
• relying on a figure read online that is no longer current.

Most of these mistakes are easy to fix if spotted early. They become costly when they surface the day before signing. Plan a conversation with an authorized person before making an offer, not after. Keep a short written list of what you have checked and what is still open, so that nothing is left to memory on signing day.

Questions to ask before committing

Before setting your down payment, ask a mortgage broker or an authorized lender representative these questions:

• Does my purchase fall into the insured or uninsured loan category?
• If a premium applies, how is it calculated, and will it be added to the loan?
• Which costs must I pay in cash at closing, including the tax on the premium?
• What proof is needed for each source of my down payment?
• Does my gift, my HBP withdrawal or my FHSA withdrawal meet the conditions?
• What happens to my payments if I slightly increase my down payment?
• What reserve should I keep after the purchase?

Check that the person is registered with the AMF by consulting the public register. CompareTaux shows no rates and makes no decision: it routes your request to an authorized person who can answer these questions for your file.

Frequently asked questions

Sources

• Canada Mortgage and Housing Corporation (CMHC)
• Financial Consumer Agency of Canada
• Canada Revenue Agency (CRA)
• Chambre des notaires du Québec
• Autorité des marchés financiers (AMF)