Understanding Down Payment Requirements in Toronto

Toronto is an expensive city, and housing costs are pretty high, making it very difficult to buy a home without getting a mortgage. How good a mortgage you can get depends on how much you can pay for the down payment. The amount also indicates whether you need a mortgage insurance or not. So, let’s take a look at down payment requirements in Toronto and how they affect the mortgage size.

What Is a Down Payment and Why Is It Important?

The down payment is the amount of money you pay before you get the mortgage. This initial payment is larger than the future installments, and its amount depends on the home’s purchase price.

The larger your down payment is, the less your monthly payments become. Also, a larger down payment reduces the interest rates. Additionally, lenders are more likely to secure you a mortgage if you can pay more for the downpayment. You can learn more about How to get a mortgage in Toronto here.

Minimum Down Payment Requirements in Toronto

The amount of downpayment for a home varies from 5% to 20% of the home’s purchase price. The following table summarizes the minimum downpayment for a house in Ontario.

For instance, if your desired house is worth $1.2 million, you have to pay $240,000 for the downpayment. If you can’t afford to pay 20% of the home price (which is above $1 million), you must get mortgage insurance through the Canada Mortgage and Housing Corporation (CMHC) or other insurers.

Also read: Mortgage Broker vs. Bank.

Recent Changes to Down Payment Regulations

New regulations were introduced in September 2024 to address housing affordability and financial stability. Based on the updates, home buyers need to put down at least 10% of the home price if it exceeds $750,000.

Moreover, there are stricter terms for homebuyers who can’t pay 20% of the home price. Other than having to get mortgage insurance, they face more stringent stress tests to ensure they can afford their mortgage. In addition, lenders are required to verify the source of the down payment to prevent fraud.

Your credit score is another determining factor in getting a mortgage. Click on the minimum credit score for a mortgage to learn more.

Impact of Down Payment Size on Mortgage Insurance

Mortgage default insurance (aka CMHC insurance) is a program that protects the lender if a lender fails to pay back the mortgage. It’s required when the borrower can pay 20% of the home price for the down payment. The higher the down payment, the lower the insurance premium. The table below summarizes insurance premiums for different down payments.

First-Time Home Buyer Down Payment Assistance

The government has launched several initiatives to help first-time home buyers with the down payment. These incentives include:

• First-Time Home Buyer Incentive (FTHBI): shared equity for 5% to 10% of home price.
• Home Buyers’ Plan (HBP): up to $35,000.
• Land Transfer Tax Rebate: up to $4,000.
• Toronto’s Home Ownership Assistance Program (HOAP): down payment assistance in the form of forgivable loans.

Click to learn more about First-Time Homebuyer Mortgage Options in Toronto.

FAQs

What is the minimum down payment in Toronto?

The minimum down payment in Toronto is 5% of the home’s purchase price, given that the house is worth up to $500,000. For more expensive homes, the buyer has to put down more money.

What is the 35% down payment rule?

According to the 35% down payment rule, the lender requires non-resident buyers or borrowers with poor credit history to pay 35% for the down payment to approve a mortgage.

Can you borrow money for a down payment in Canada?

You can get a personal loan or use lines of credit to help you with the down payment. However, getting a loan can damage your credit score.

Can you use RRSP for a down payment?

Thanks to the Home Buyers’ Plan, first-time home buyers can withdraw up to $35,000 from their RRSP tax-free to use for a down payment.

Conclusion

The down payment is a decisive factor in how good a mortgage you can get. The larger the down payment, the lower the monthly costs and interest rates. If you can’t pay at least 20% of the home’s price for the down payment, you must get mortgage insurance. Likewise, the lower the down payment, the higher the mortgage premiums. There’s no need for mortgage insurance if you pay the 20%.