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Your Down Payment

Your down payment is an important step to buying a home. Understand what it is and ways to save.

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  • What's a Down Payment?

    The down payment is the amount used toward the purchase of the home that comes out of your own savings. Your down payment can be as little as 5%. If you can afford to put down more, that's great. The higher your down payment, the less you'll have to borrow, which means less of your income every month will go toward repaying your mortgage. The more you put down, the less you'll have to borrow, meaning lower payments every month.

    Wooden minature model house

  • Will You Need Mortgage Default Insurance?
    Man reviewing his down payment paperwork

    If your down payment is less than 20% of the purchase price, you'll need to insure it with mortgage default insurance. This is because financial institutions such as banks cannot provide mortgages greater than 80% of the home price. Your mortgage provider has access to mortgage insurers in Canada and will apply the appropriate premiums as guided by that insurer. Insurance premiums are contingent upon the amount of down payment, and can be paid up front or added to your mortgage. Mortgage default insurance is not available for homes with a purchase price of a million dollars or more and/or an amortization period greater than 25 years. Keep In Mind: You must have 1.5% of the purchase price for the closing costs in addition to your down payment in order to qualify for this insurance.

  • Sample Mortgage Insurance Premium

    Depending on your down payment, here's what your insurance premiums could look like, based on a $450,000 home.

    Based on your:Insurance option 1Insurance option 2
    Property value$450,000$450,000
    Down payment35% or $22,50010% or $45,000
    Mortgage loan$450,000 - $22,500 = $427,500$450,000 - $45,000 = $405,000
    Amortization25 years25 years
    Loan-to-value ratio$427,500/$450,000 = 95%$405,000/$450,000 = 90%
    Premium$427,500 X 4.00%4$405,000 X 3.10%4
    Default insurance cost$17,100$12,555
    Based on your:
    Insurance option 1
    Insurance option 2
    Property value
    Down payment3
    5% or $22,500
    10% or $45,000
    Mortgage loan
    $450,000 - $22,500 = $427,500
    $450,000 - $45,000 = $405,000
    25 years
    25 years
    Loan-to-value ratio
    $427,500/$450,000 = 95%
    $405,000/$450,000 = 90%
    $427,500 X 4.00%4
    $405,000 X 3.10%4
    Default insurance cost

    Mortgage default insurance lets you buy the home you want without the 20% down payment.

    Find out more about mortgage default insurance

  • Deposit vs. Down Payment

    The deposit is a portion of the down payment that is included, usually in the form of a certified cheque or bank draft, with the Offer to Purchase as a sign of good faith.

    How Much Is The Deposit?

    The amount varies by region and purchase price. The initial deposit is provided during the negotiation of the purchase of the property (for example, $5000 - $10,000).

    Who Gets The Deposit?

    The deposit cheque is made out to your real estate agent's brokerage. If your offer is accepted, the cheque is deposited and held "in trust", until the deal closes. Upon closing, the deposit amount is deducted from your down payment, and you pay the remainder, if any.

    A larger deposit may give you a bargaining edge with the seller in a competitive situation.

    Where to Find Your Down Payment

    There are a number of sources people draw on for their down payment. Use the worksheet below to help figure out where yours could come from.

  • Personal Savings And Assets

    Even small amounts here and there add up: savings accounts, dividends, a savings bond that's matured, a holiday bonus from work or an income tax refund. You might even decide to sell some of your personal possessions to raise money.

  • Your RRSP
    Elderly couple hiking thanks to their RRSP

    If you have a Registered Retirement Savings Plan (RRSP), you can withdraw from your RRSP (it's not considered a loan as no interest is charged) to buy or build your first home under the Canada Revenue Agency (CRA) Home Buyers' Plan (HBP). You and your spouse or common-law partner are each allowed to withdraw up to $25,000 tax-free from your RRSP. The withdrawal is paid back in equal installments over 15 years, beginning the second year after the withdrawal. You'll be notified by the CRA when you need to begin repayments. Be sure to include the repayment amount in your budget because if you miss an installment or underpay, that amount will be added to your taxable income for the year.

  • Family

    Many people receive assistance from their parents or other relatives. Money provided in the form of a gift or an early inheritance can be used towards your down payment, provided it doesn't have to be paid back. Your lender will request written confirmation if this is your source of down payment including details of the family member providing the gift so it can be confirmed.

    Automatic Savings Plan

    If you won't be buying for several years, it's a good idea to open a dedicated savings account. Even better: start a Continuous Savings Plan, where you arrange for a certain amount of money to be withdrawn from your chequing account and deposited into a savings account automatically on a regular basis.

    Tax-Free Savings Account

    In a TFSA, there is no tax on annual earnings and no tax on withdrawal. Contribute up to $5,500 a year, and if you contribute less than this, you can carry forward any unused contribution room in case you want to contribute more next year. Savings Tip: Let's say you pay $800 a month in rent, and your anticipated mortgage will be $1,200. Why not put the $400 difference into savings? In just one year, you'll have $4,800 (plus interest) for your down payment.

    How BMO Can Help

    We have everything you need to bring you closer to achieving your down payment goals. We can set up a Continuous Savings Plan for you to make saving easy and affordable. Based on your timelines, we can recommend appropriate savings and investment solutions, including BMO Mutual Funds7 , BMO Term Investments, and a Smart Saver Account. We can also provide information about the Home Buyers Plan program and set up the paperwork, no matter where you hold your RRSPs.
    Father and son drinking coffee together

  • Down Payment Worksheet

    Identify possible sources that can contribute to your down payment by downloading and completing the Down Payment Worksheet below.

    Download Down Payment Worksheet (84KB - PDF)
    Couple reviewing their down payment information

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