If your down payment is less than 20%
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A quick look at borrowing options if don't have at least a 20% down payment
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 go ahead and buy now? If you buy now, you'll have to get a high-ratio mortgage or a second mortgage. You can borrow up to 95% of the purchase price.
| Interest costs |
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| Other costs |
- Don't have to buy mortgage insurance
- Keep paying rent
- May have to save even more if house prices rise
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- Increased costs, as have to buy mortgage insurance and pay interest on it if you pay monthly
- Stop paying rent. Own more of home sooner
- Buy at today's prices
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| 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
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- Risk taking on more debt than you can handle
- Increased risk of not paying loan if house prices rise and you have to sell
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High-ratio mortgage
- You can borrow up to 95% of the purchase price.
- You’ll have to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) to cover the 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.
| $30,000 (15%) |
$170,000 |
1.75% |
$2,975 |
|---|
| $20,000 (10%) |
$180,000 |
2% |
$3,600 |
|---|
| $10,000 (5%) |
$190,000 |
2.75% |
$5,225 |
|---|
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.
You'll 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.
Don't take on too much debt
If you are thinking about borrowing more than 80% of the purchase price, you may be taking on more debt than you can handle. 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.