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If your down payment is less than 20%

​If your down payment is less than 20% of the purchase price of the home you want to buy, a regular mortgage is out of your reach. Do you wait and save more, or buy now and borrow more? If you buy now, you'll have to get a costlier high-ratio mortgage or a second mortgage.

       ​Save more and wait to buy ​        Buy now and borrow more
​Interest costs
  • ​Pay less interest
  • ​Pay more interest
​Other costs
  • ​Don't have to buy mortgage insurance
  • Keep paying rent
  • May have to save even more if house prices rise
  • ​Increased costs, as have to buy mortgage insurance and pay interest on it if you pay monthly
  • Stop paying rent and own more of home sooner
  • Buy at today's prices
​Risks
  • ​Risk spending what you've saved
  • Reduced risk of not being able to pay back loan if the value of your home drops and you have to sell
  • ​Risk taking on more debt than you can handle
  • Increased risk of not paying loan if house prices rise and you have to sell

High-ratio mortgage

​A high-ratio mortgage lets you borrow up to 95% of the purchase price. But you’ll have to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) to cover the higher risk of this loan. You can pay for your insurance in a single lump sum when you buy your home. Or, add it to your mortgage and include it in your monthly payments. If you choose to pay the insurance monthly, you'll pay interest on it.

Example — Here's how much you would pay to insure your mortgage with CMHC on a $200,000 home — depending on the amount of your down payment.

​Down payment Amount of mortgage ​Interest rate* Cost of insurance
​$30,000 (15%) ​$170,000 ​1.80% ​$3,060
​$20,000 (10%) ​$180,000 ​2.40% ​$4,320
​$10,000 (5%) ​$190,000 ​3.60% ​$6,840

*CMHC loan insurance premiums are current as of June 1, 2015.

Calculate your insurance premium

Use this Mortgage calculator to find out how much insurance you’ll have to buy if your down payment is less than 20%.

New minimum down payment rules

As of February 15, 2016, home buyers will have to abide by new minimum down payment rules. Previously home buyers could have a down payment minimum of 5% for homes under $1 million. The new rules require a minimum 10% down payment for homes over $500,000 – but only on the portion of the price over $500,000. For example: 

  • Purchase price: $700,000
  • 5% minimum down payment on first $500,000: $25,000
  • 10% minimum down payment on remaining $200,000: $20,000
  • Total minimum down payment on home: $45,000 

Home purchases under $500,000 are not affected by the change and will still require a minimum of 5% down.

Second mortgage

First, you borrow as much as you can with a regular mortgage — also known as a first mortgage.

Then you get a second mortgage for the rest. You get this loan from a different lender. You'll usually pay a higher rate of interest for a second mortgage. The lender is taking a greater risk because it may not get its money back if you have to sell your home. That's because the lender that holds your first mortgage is first in line.

You may not qualify for the higher debt

When you apply for a mortgage, lenders add up your monthly housing costs and figure out what percentage they are of your gross household monthly income. This figure is called your Gross Debt Service (GDS) ratio. You won't be considered for a mortgage if your GDS ratio is more than 32%. Learn more about how lenders calculate the GDS ratio.
 

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