How Much Should You Put Down on a Home?

Saving for a down payment is one of the biggest financial goals for prospective homebuyers. But after years of putting money aside, it can be easy to lose sight of the bigger picture.

A larger down payment reduces your mortgage, lowers your monthly payments and can save you interest. Commit too much cash to the purchase, however, and you may be left short for closing costs, repairs or unexpected expenses.

The right down payment balances borrowing costs against the cash you'll need to manage homeownership comfortably.

How much down payment do you need?

The minimum down payment in Canada depends on the home's purchase price:

These are minimums, not recommendations. Your lender may require a larger down payment depending on your financial circumstances and the mortgage you're applying for.

For example, a $600,000 home requires a minimum down payment of $35,000: $25,000 on the first $500,000 and $10,000 on the remaining $100,000. A 20% down payment would be $120,000.

That $85,000 difference is substantial, but it doesn't automatically make one option better. You'll need to weigh the cost of borrowing against the cash required for closing and ongoing homeownership expenses.

When putting more down can save you money

A larger down payment means borrowing less, which generally reduces your monthly payments and the interest you pay over the mortgage's lifetime, assuming the rate and other terms are the same.

It can also help you avoid mortgage default insurance. Eligible mortgages with less than 20% down generally require this coverage. The premium depends on factors including the mortgage amount relative to the property's value, and can usually be added to the mortgage.

The insurance protects the lender against losses if you default; it doesn't protect you as the borrower. Its premium adds to your borrowing costs.

The Financial Consumer Agency of Canada (FCAC) illustrates the difference using a $400,000 home, a hypothetical 4% mortgage rate and a 25-year amortization.

With 5% down, the mortgage would be $380,000 before a $15,200 insurance premium. With 20% down, the mortgage would be $320,000, with no insurance premium required. In the FCAC's example, the total home cost, including the down payment and mortgage costs, falls from $643,649 to $584,979.

Your savings will depend on the purchase price, interest rate, amortization and insurance premium. The underlying principle is straightforward: borrowing less generally costs less.

Don't put every available dollar into the down payment

Beyond the down payment, you'll need to budget for closing costs, which can include legal fees, a home inspection, title insurance and property tax adjustments. The FCAC recommends setting aside approximately 1.5% to 4% of the purchase price for these expenses, although the actual amount varies.

Moving, furniture, immediate repairs and maintenance can add to the bill. Even a home in good condition can come with unexpected expenses after you take possession.

Accessible savings can help you cover these costs without relying on credit or disrupting other financial commitments. The FCAC recommends aiming for an emergency fund covering three to six months of regular expenses, although the amount you can reasonably retain will depend on your circumstances.

Consider a buyer with $150,000 available for a down payment and purchase costs. Putting $120,000 down on a $600,000 home reaches the 20% threshold but leaves $30,000 for closing costs and other needs. A smaller down payment would preserve more cash, but increase the mortgage and potentially trigger an insurance premium.

The question is whether the savings from borrowing less justify the reduction in your financial flexibility.

Is 20% down the right target?

Twenty per cent is a useful benchmark because it generally eliminates the need for mortgage default insurance. But stretching to reach it may leave you financially exposed if too little cash remains after closing.

A smaller down payment may be more practical if it allows you to cover purchase costs and maintain an adequate cash reserve. The trade-off is a larger mortgage, higher payments and, in most eligible cases, mortgage insurance.

Putting down more than 20% reduces your mortgage further. Whether that makes sense depends on the interest savings compared with other priorities, such as paying off high-interest debt, maintaining retirement contributions or keeping cash available for foreseeable expenses.

The best target isn't a fixed percentage. It's an amount that reduces borrowing costs without compromising your ability to manage the expenses and financial priorities that follow the purchase.

How to decide what you should put down

Start with your available savings. Account for closing costs and immediate expenses, then decide how much you need to retain for emergencies and ongoing household costs.

You can use the FCAC's estimate of 1.5% to 4% of the purchase price as a starting point, then calculate any applicable property transfer tax and get estimates for legal fees and other transaction costs. Your province's tax calculator can help, while your lawyer or notary can provide a more precise estimate as the purchase takes shape.

Next, compare mortgage options at different down-payment levels. Consider the mortgage balance, monthly payment, insurance premium where applicable and total borrowing cost. A mortgage calculator can help, provided you compare options using the same interest rates and amortization periods.

If you’re not sure where to start, a mortgage broker can help you compare options, understand how your down payment affects borrowing costs and qualification, and identify a plan that fits your circumstances.