Mortgage Down Payment Options

From a low down payment mortgage to using your Registered Retirement Savings Plan (RRSP) as a source of funds, buying a home has many options for your down payment.

The down payment is that portion of the purchase price you pay yourself. The balance of the purchase price is paid by a financial institution in the form of a mortgage. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.

Conventional Mortgage

A conventional mortgage requires a down payment of at least 20% of the purchase price and is offered on either a fixed or variable interest rate basis. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.

High Ratio Mortgage

Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages (as low as 5%). Low down payment mortgages must be insured to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.

Mortgage default insurance is a one time premium paid when your home purchase transaction closes. You can pay the premium or add it to the principal amount of your mortgage.

Using Your RRSP as a Down Payment

Under the federal government's Home Buyer's Plan, first-time home buyers are eligible to use up to $25,000 in RRSP savings per person ($50,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15-year period. To qualify, the RRSP funds you plan to use must have been in your RRSP for at least 90 days.

Saving Money with a Larger Down Payment

It's to your advantage to put down as much money as you can because interest costs for a smaller mortgage are lower which adds up to significant savings over the long run.

Besides the size of your down payment, be sure to reserve some funds to cover your home inspection, closing costs, moving and other potential expenses.