A down payment is the initial amount of money that a homebuyer puts upfront towards the purchase of a house, colloquially known as "putting money down." Put simply, a larger down payment reduces the amount you need to borrow, which can lower your monthly payments and could eliminate the need for mortgage insurance. It also shows lenders you may have a higher level of financial ability which can improve your chance of becoming approved. In Canada, the minimum down payment required depends on the purchase price of the home. For homes priced at $500,000 or less, the minimum down payment is 5% of the purchase price. For homes between $500,000 and $1.5 million, buyers must put down 5% on the first $500,000 and 10% on the portion above that amount. If the home is priced over $1.5 million, a 20% down payment is required, and mortgage insurance is not required. If you are not a first time home buyer and you wish to put down more than 20% on a property over $1 million, your mortgage is now labeled “uninsured”. The rates offered by lenders will be higher but you will not be required to purchase default mortgage insurance which may result in less interest being paid over the life of your mortgage.
While these down payment rules apply to all buyers, recent federal updates have expanded opportunities for first-time buyers. As of 2024, first-time home buyers can purchase homes between $500,000 and $1.5 million, put down 5% on the first $500,000 and 10% on the portion above that amount and extend the amortization out to 30 years. Now, combine this with new incentives like an increased RRSP Home Buyers’ Plan limit (with a total value of $60,000 per individual) and GST rebates of up to $50,000 on new homes, home ownership has never been more accessable to Canadians who want to enter the market for the first time.
A high-ratio mortgage is a type of home loan where the buyer puts down less than 20% of the property's purchase price. As the loan-to-value ratio exceeds 80%, the lender is required by law to secure mortgage default insurance - typically through providers like CMHC, Sagen, or Canada Guaranty.
This insurance ultimately protects the lender in case the borrower defaults, and the premium from this insurance is added onto the total mortgage amount. Although there is additional risk, high-ratio mortgages are becoming an increasingly common solution among first-time homebuyers and those entering competitive real estate markets with limited savings. Conversely, if the down payment is higher than 20%, that is known as a "Conventional" or "Low-Ratio" Mortgage in which no insurance is required.
The Loan-to-Value ratio compares the amount of your mortgage loan to the total value of the home, calculated by dividing the loan amount by the purchase price (or appraised value).
Formula:
LTV = (Mortgage Amount ÷ Home Value) x 100
High Ratio Example: Emily in Coquitlam
Emily is a first-time homebuyer purchasing a $600,000 condo in Coquitlam. She puts down 5.83% (5% on the first $500,000 and 10% on an amount up to $1.5 Million), which equals $35,000. That leaves $565,000 to be financed, resulting in a loan-to-value (LTV) ratio of 94.2%. Since her LTV exceeds 80%, her mortgage is considered high ratio and requires mortgage default insurance. The insurance premium is added to her mortgage balance, slightly increasing her monthly payments - but this allows her to enter the market much sooner than she otherwise could.
Low Ratio Example: Jamal and Priya in Coquitlam
Jamal and Priya are buying a newly built home in Coquitlam for $725,000. They’ve saved up a 25% down payment, totaling $181,250, leaving $543,750 to be financed. This gives them a loan-to-value (LTV) ratio of 75%, which qualifies them for a low ratio (conventional) mortgage. Because their LTV is below 80%, no mortgage insurance is required. Although they don’t qualify for the 30-year amortization available with insured mortgages, their larger down payment means lower monthly payments and reduced interest over time.
High ratio mortgages are incredibly effective in improving short term monthly cash flow and getting you in the market faster so you can start building equity. Here are a few tips that can help you manage a high ratio mortgage and get the most out of it. Start by boosting your credit score before applying, lenders and insurers often will offer better rates to potential borrowers who have strong credit as that proves financial stability and will seem like less of a risk for them to provide a loan. This will also lead to lower interest charges over time.
If possible, increase your down payment, even if just slightly. Moving from a 5% to 10% can significantly lower your mortgage insurance premium. There are several programs out there for first-time home buyers in Canada such as the home Buyer's Plan (HBP) or First home Savings Account (FHSA) to maximize your savings and reduce expenses.
Once your mortgage is in place, explore options to make additional payments toward the principal whenever you are able to within your budget. Many lenders offer "prepayment privileges" that let you pay down your loan faster without penalties.
Finally (and this will be long-term), refinance strategically once you've built up more equity. If your LTV drops below 80%, you could look into eliminating insurance altogether and access better rates. Staying informed, planning ahead, and working closely with a mortgage broker can help you make the most of your high ratio mortgage and transition into a low-ratio position over time.
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