What Is a Down Payment in Canada?

What Is a Down Payment and Why Is It Important for Homebuyers?

Buying your first home is an exciting milestone—but it also comes with a lot of new terminology and financial concepts to learn. One of the biggest pieces of the puzzle is understanding how down payments work in Canada and Ontario.

You might be wondering: What is a down payment? Why is it required? And how much do you actually need to save?

In this blog, we’ll take the confusion out of the equation by clearly explaining what a down payment is, how much you’ll need based on home prices in Ontario, and what your options are as a first-time buyer. If you’re dreaming about homeownership, this guide will help you take a confident first step.

What Is a Down Payment in Real Estate?

Let’s start with the basics. A down payment is the amount of money you pay upfront toward the purchase of a home. It’s expressed as a percentage of the total property price and the rest is typically financed through a mortgage.

In Ontario and across Canada, down payments are an essential part of the homebuying process, and they often determine the type of mortgage you qualify for and your overall financial strategy. Having a solid understanding of what a down payment is will help you make better-informed decisions as you begin your search for a new home.

Why Are Down Payments Required by Lenders in Canada?

Before lenders offer you a mortgage, they want to know you’re financially invested. That’s where your down payment comes in. It signals to lenders that you have skin in the game and reduces their financial risk.

A required part of the mortgage process, your down payment shows lenders that you are serious and capable of meeting your financial obligations. And it can also work to your advantage.

Here are a few key benefits of making a larger down payment:

Lower monthly mortgage payments
Reduced total interest over the life of the loan
Potential to avoid mortgage default insurance

In short, the more you can contribute upfront, the stronger your financial position as a buyer. This can lead to better mortgage terms and greater long-term savings.

How Much Is a Down Payment in Ontario?

The amount you’ll need depends on the price of the home you’re buying. In Canada, there are tiered minimum requirements based on the home’s value.

Here’s a simple breakdown of how much you need for a down payment in Ontario:

5% for homes priced up to $500,000
10% for the portion between $500,000 and $999,999
20% minimum for homes $1 million or more

Example: If you’re buying a $600,000 home in Burlington:

5% of the first $500,000 = $25,000
10% of the next $100,000 = $10,000
Total minimum down payment = $35,000

Understanding these requirements can help you set realistic savings goals and plan ahead before you start house hunting. Having a clear number in mind can give you a concrete target to work toward.

What Is Mortgage Default Insurance in Canada?

If you’re putting down less than 20%, Canadian law requires you to purchase mortgage default insurance. This insurance is typically provided by CMHC (Canada Mortgage and Housing Corporation) or a similar institution.

This type of insurance protects the lender—not the borrower—in the event that you’re unable to make your mortgage payments. While it does add an extra cost to your monthly mortgage, it also allows you to buy a home with as little as 5% down.

Understanding mortgage default insurance helps you weigh the pros and cons of a lower down payment and decide what’s best for your financial situation.

Acceptable Sources of a Down Payment in Ontario

You know how much you need—but where is that money allowed to come from? Canadian mortgage lenders accept funds from a few different sources, but documentation and proof are always required.

Acceptable sources include:

Personal savings
RRSP withdrawals (up to $60,000 tax-free via the Home Buyers’ Plan)
Gifts from immediate family members
Proceeds from a previous home sale

Using a combination of these sources can help you reach your target faster, but be prepared to show your lender where your funds originated.

Smart Tips to Save for Your Down Payment

Saving for a down payment might seem overwhelming, especially in today’s housing market—but it’s doable with a few smart strategies and consistency.

Here are some proven savings tips:

Open a dedicated high-interest savings account
Automate your savings with pre-set monthly deposits
Use a Tax-Free Savings Account (TFSA) for tax-free growth
Cut back on non-essential expenses and redirect the money toward savings

You should also take advantage of Ontario’s first-time homebuyer programs or federal incentives. These programs are designed to help new buyers get into the market with less upfront pressure.

Work With the VanDinther Team to Navigate Homeownership

Understanding down payments is just the beginning. When you’re ready to take the next step toward buying a home, having a trusted real estate team by your side can make all the difference.

The VanDinther Team is a group of experienced Burlington REALTORS® who specialize in helping first-time buyers feel confident and informed throughout the process. From navigating financing to finding the perfect property, we’re here to support you every step of the way.

📞 Direct: 905-330-2002
🏢 Office: 905-632-2199
📧 Email: info@loriv.com
🕘 Office Hours: Mon—Fri: 9am – 4pm

Reach out to us today and let’s start turning your homeownership dreams into reality.

If you’re a first-time homebuyer searching for expert advice and trusted support in Burlington and surrounding areas, the VanDinther Team is here for you.