The Advantages of Making a 20% Down Payment

Is a 20% Down Payment Required to Buy a Home in Canada?

You may have heard that putting down 20% is the gold standard when buying a home in Canada. While that benchmark has its benefits, it's not necessarily a requirement—especially with rising property values from coast to coast making homeownership a bit more challenging. Let’s break down what a 20% down payment means, why it can be helpful, and what your options are if you're not quite there yet.

How Much Is 20% Down?

Calculating a 20% down payment is simple: just multiply the home's purchase price by 0.20. For example, on a $500,000 property, that equals $100,000.

Do You Need to Put Down 20%?

The short answer is no—unless you're buying a home priced over $1.5 million. In many cases, buyers can qualify for a mortgage with as little as 5% down. However, there are some key advantages to aiming for that 20% mark.

Why a 20% Down Payment Might Be Worth It

Here are several benefits to consider when deciding how much to put down on your home:

1. Easier Mortgage Approval

A larger down payment demonstrates strong financial health and reduces the lender’s risk, which can improve your chances of mortgage approval.

2. Lower Interest Rates

With a larger initial investment, lenders often offer better rates because you’re seen as a lower-risk borrower.

3. Smaller Monthly Payments

A bigger down payment reduces the size of your mortgage, meaning your monthly payments will be lower.

4. Avoiding Mortgage Insurance

If your down payment is below 20%, mortgage default insurance is mandatory. This cost, which can range from 0.6% to 4.5% of your loan amount, adds to your monthly expenses.

5. Save on Total Interest

Over the life of your mortgage, you’ll pay significantly less interest. For example, on a $600,000 home at 5% interest over 25 years:

5% down ($30,000): $429,648.97 in interest

10% down ($60,000): $407,035.87 in interest

20% down ($120,000): $361,809.66 in interest

That’s a potential savings of nearly $68,000 in interest alone.

6. Pay Off Your Mortgage Sooner

With a smaller loan and lower payments, you’ll be in a better position to make extra contributions and become mortgage-free faster. Using the same $600,000 example:

5% down: Paid off in 25 years

10% down: Paid off in 22 years, 7 months

20% down: Paid off in 18 years, 5 months

7. Build Equity Faster

Equity is your ownership stake in the property, and it grows with every payment. Starting with 20% down means you’re instantly further ahead in building wealth through real estate.

What If You Can’t Afford 20% Right Now?

Don’t worry! Many Canadians buy homes with smaller down payments. Here are some ways to make homeownership more accessible:

Start with Less

You can legally buy a home with as little as 5% down for properties under $500,000. Even if it means higher monthly payments or mortgage insurance, it gets you into the market sooner.

Extend the Amortization Period

A longer amortization (up to 30 years) can make monthly payments more manageable. You’ll pay more in interest over time, but many lenders let you make extra payments later to reduce the balance faster.

Use Government Programs

There are several helpful programs designed to support first-time buyers:

• Home Buyers' Plan (HBP): Withdraw up to $60,000 from your RRSP tax-free to use toward your down payment.

• First Home Savings Account (FHSA): Save up to $40,000 tax-free, with annual contributions up to $8,000.

• GST/HST Rebates: Some buyers may qualify for rebates depending on their property and location.

These programs are updated regularly, so be sure to check the latest information or consult with a mortgage professional.

Final Thoughts

A 20% down payment can certainly make homeownership more affordable in the long run, but it's not a hard requirement for everyone. Whether you're ready to buy now or still saving, the key is to explore your options and make a plan that works for your financial goals.

Thinking about buying a home? Connect with me and I can guide you through your options and help you get into a home you love, on your terms.