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Save for your down payment

It’s smart to start saving as soon as you start thinking about buying a home. The larger your down payment, the less you’ll have to borrow and the lower your interest costs will be.

How much will you need?

You can buy a home with as little as 5% of the purchase price as a down payment from your own savings. On a home that costs $300,000, that would be $15,000.

If your down payment is 20% or more of the home price, you’ll qualify for a conventional or collateral mortgage. If it is less than 20%, it is a high-ratio conventional mortgage, and you’ll need to insure it with Mortgage Default Insurance. This one-time insurance premium is usually added to your mortgage or it can be paid up front.

In addition, you must have enough cash to cover closing costs. For a high-ratio mortgage, you must have at least 1.5% of the purchase price from your own resources to cover or contribute to the closing costs in order to qualify for mortgage default insurance.

Where will the money come from?

There are many sources you may be able to tap into, including:

  • Personal savings. Review your chequing and savings accounts and Tax-Free Savings Accounts.
  • Retirement Savings Plans (RSPs). Under the Canada Revenue Agency (CRA) Home Buyers’ Plan (HBP), you and your spouse or common-law partner may be allowed to withdraw up to $25,000 each from your RSP as a tax-free loan that you pay back in equal installments over 15 years. Learn more.
  • Gifts from family. This could be a one-time gift or accumulated cash gifts from special occasions.
  • Assets. Check for insurance dividends, Canada Savings Bonds (CSBs), Guaranteed Investment Certificates (GICs), term deposits, non-registered equities.
  • Unexpected income. An income tax refund, work bonus or the extra income from a raise are all potential sources.

Ways to save for a down payment

Start now, and save small amounts on a regular basis.

  • Set money aside. Open a dedicated savings account to keep it separate from your day-to-day finances.
  • Make saving automatic. Set up a Continuous Savings Plan to make it easier to save regularly. Find out how much you can save, with the Continuous Savings Plan calculator.
  • Put your savings to work. Choose an investment option based on your anticipated time horizon.
  • Keep the taxes. Accumulate your savings (up to $5,000 a year, per person) in a Tax-Free Savings Account, and you won’t pay tax on the money you earn.

How we can help

At BMO, we can help you assess your current savings and set up a plan to help you get the down payment you need. We can:

  • Provide advice on how much you need to save.
  • Set up an automatic savings plan for you.
  • Recommend appropriate savings and investment solutions based on your timelines, budget and goals.

Speak with a BMO Mortgage Representative in-branch.

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