Buying a Home with Less Than 20% Down: What You Need to Know About Mortgage Insurance
For many homebuyers, especially first-time buyers, coming up with a 20% down payment can be challenging. The good news is that you do not need 20% down to buy a home in Canada. You can purchase a home with as little as 5% down, but if your down payment is less than 20%, you will be required to pay mortgage default insurance—commonly known as CMHC insurance.
What is Mortgage Insurance?
Mortgage insurance protects the lender, not the borrower, in case of default. It allows lenders to offer more competitive interest rates for buyers with lower down payments because it reduces their risk. The insurance premium is a one-time fee added to your mortgage balance and paid off over the life of your loan.
How Much Does Mortgage Insurance Cost?
The premium you pay depends on how much you put down. The lower your down payment, the higher the insurance premium. Here is a breakdown of current mortgage insurance rates in Canada:
- 5% down payment → 4.00% of the mortgage amount
- 10% down payment → 3.10% of the mortgage amount
- 15% down payment → 2.80% of the mortgage amount
Example: Buying a $500,000 Home with 5% Down
- Purchase Price: $500,000
- Down Payment (5%): $25,000
- Mortgage Amount Before Insurance: $475,000
- Mortgage Insurance Premium (4.00%): $19,000
- Total Mortgage (After Insurance): $494,000
Even though you put down $25,000, your final mortgage amount will be higher due to the added insurance cost.
How Do I Avoid Mortgage Insurance?
If you have at least 20% down, you are not required to pay mortgage insurance. This can save you thousands, but it is not always necessary to wait until you have a full 20% down payment. In many cases, getting into the market sooner with 5% or 10% down can make sense, especially if home prices are rising.
Other Things to Consider
- If You Buy Over $1.5 Million → Mortgage insurance is not available for homes over $1.5 million, so you will need at least 20% down.
- Saving More vs. Getting in Sooner → Waiting to save a 20% down payment may mean missing out on home price appreciation.
If you are thinking about buying a home and are unsure how much you need for a down payment, let’s go through the numbers together.
Call or text (902) 402-9779, or visit www.gregmatthews.tmgbroker.com/apply.aspx to fill out a five-minute pre-approval form.