DOWNPAYMENTS & CMHC
A down payment refers to the money a purchaser must pay upfront when buying a home. Typically, the down payment is a much smaller amount compared to the size of the mortgage. Together, the down payment plus the mortgage represent the total value of the home being acquired. Down payments are usually expressed as a percentage of the property value.
For example, a 15% down payment on a home selling for $500,000 would be $75,000. The mortgage, comprising the balance, would be 85% or $425,000.
In Canada there are rules about how much someone much have as a down payment. The percentage you must put down depends on the purchase price of the home:
For homes less than $500,000, the minimum down payment is 5%
For homes selling for between $500,000 and $1 million, the minimum down payment is 5% of the first $500,000 of the purchase price and then 10% of the purchase price between $500,000 and $1 million
For homes with a purchase price of greater than $1 million, the minimum down payment is 20%
The size of your down payment affects the size of your mortgage and whether or not you need CMHC insurance.
In Canada, any purchaser who has a down payment of less than 20% is required to purchase mortgage default insurance, which is also known as CMHC insurance. This protects your lender in the event that you end up defaulting on your mortgage.
The amount you pay declines as your down payment increases.
For down payments of 5% to 9.99%, homebuyers pay a premium rate of 4.0%.
If you have a down payment of 10% to 14.99%, the CMHC insurance is 3.10% of the mortgage amount.
And for down payments of 15% to 19.99%, the CMHC insurance is 2.80%.
CMHC insurance isn’t needed if your down payment is 20% or greater. And it’s not available on homes that cost more than $1 million.