When purchasing a home in Canada with less than a 20% down payment, loan insurance on the mortgage is required to protect the lender. The cost of insurance is passed on to the home owner usually as part of the mortgage payment.
Minimum down payments are based on the cost of the house as follows:
- the minimum for a house that costs $500,000 or less is 5% ($25,000)
- for a house that costs more than $500,000 it is 5% on the first $500,000 then 10% on the rest. For example: the minimum down payment on a house that costs $700,000 would be $500,000 x .05 ($25,000) + $200,000 x .10 ($20,000) for a total of $45,000
- CMHC mortgage insurance is not available on a house that costs over $1,000,000
The Government of Canada’s Budget 2019 announced a ‘First-Time Home Buyer Incentive’. The incentive allows for the first-time homeowner, who has the minimum down payment, to apply for a portion of their mortgage to be financed by a shared equity loan through Canada Mortgage and Housing Corporation (CMHC).
The loan amount is:
- 10% on a newly constructed home or,
- 5% on an existing home
To qualify, the homeowner’s household income per year must not exceed $120,000 and the mortgage for the home cannot be greater than four times the participants’ annual household income. Although these loans are interest free, they must be paid back to CMHC, most likely on the sale of the property, as 5% or 10% on the sale price of the home.
Budget 2019 also proposed changing the RRSP withdrawal limit for first-time home buyers from $25,000 to $35,000.