Homebuying in Canada: Down Payments, Mortgages, and Closing Costs Explained
Buying a home is one of the biggest financial decisions Canadians make. Between minimum down payments, mortgage insurance, stress tests, land transfer taxes, and rate choices, the details can feel like a maze. This guide brings the process into focus so you can budget confidently and make decisions based on your goals—not just today’s headlines.
Down payment rules in Canada
Minimum down payments depend on the purchase price: 5% of the first $500,000 and 10% of the portion from $500,000 to $999,999. For homes priced at $1,000,000 or more, the minimum is 20%. If your down payment is under 20%, you must buy mortgage default insurance (often called CMHC insurance, though there are multiple insurers). The premium is added to your mortgage amount and varies with your down payment percentage.
The mortgage stress test
Lenders must ensure you can afford payments at the greater of your contract rate plus 2% or a set qualifying rate. This protects borrowers from rate increases and sets a maximum loan amount that may be lower than you expect. Get pre‑approved early to understand your budget and lock a rate hold for 60–120 days while you shop.
Fixed vs. variable, term vs. amortization
Fixed‑rate mortgages keep your payment steady for the term (commonly five years). Variable rates float with the lender’s prime rate and can change during the term. The amortization (often 25 years for insured, up to 30 for uninsured in some cases) is the total time to pay off the mortgage. A longer amortization lowers payments but increases total interest. Choose a term and rate type that match your risk tolerance and flexibility needs.
First‑time buyer tools
The First Home Savings Account (FHSA) lets you contribute, claim a tax deduction, and later withdraw tax‑free for a qualifying home—powerful for savers. The Home Buyers’ Plan (HBP) allows first‑time buyers to withdraw from RRSPs without immediate tax, as long as you repay the amount over time. Combine FHSA and HBP thoughtfully to accelerate your down payment and maintain a strong long‑term plan.
Closing costs: Budget beyond the down payment
Set aside 1.5–4% of the purchase price for closing costs, depending on your province and situation. Typical items include legal fees and disbursements, title insurance, appraisal fees, home inspection, and land transfer tax (LTT). Ontario, British Columbia, and Manitoba have provincial LTT; Toronto adds a municipal LTT on top. New‑builds may involve GST/HST with possible rebates. Your lawyer will provide a detailed statement of adjustments before closing so you know the exact amount due.
Condo fees, utilities, and property taxes
If you’re buying a condo, review the status certificate and budget for monthly fees that cover building maintenance and reserve funds. For all homes, factor in property taxes (often paid monthly through your lender) and utilities like heat, electricity, and water. In cold provinces, winter energy costs can be materially higher—plan accordingly.
Offer conditions and due diligence
In competitive markets, conditional offers can be rare, but they’re important risk controls: financing approval, home inspection, and review of condo documents are common. Discuss strategy with your agent—when competition is fierce, you might schedule an inspection before offering or work with a mortgage broker to fast‑track underwriting. Know your walk‑away price before you fall in love with a property.
Penalties, portability, and prepayments
Breaking a mortgage early can be expensive, especially with fixed‑rate terms that use interest rate differential (IRD) calculations. If you expect to move, consider a portable mortgage or a shorter term. Prepayment privileges let you pay faster—look for options to increase payments and make lump‑sum contributions without penalty. Small, regular prepayments can shave years off your amortization.
Insurance and protection
Home insurance is typically required by your lender. Consider add‑ons like sewer backup or overland water coverage depending on local risks. If others depend on your income, review life and disability insurance; your home shouldn’t depend on perfect health or employment.
A buying path you can follow
- Check your credit reports and scores; fix errors and pay down balances.
- Create a budget that stress‑tests payments at higher rates.
- Open an FHSA and set up automatic contributions; consider HBP planning if you have RRSP room.
- Meet a mortgage broker and get pre‑approved to define your price range.
- Choose a trusted real estate agent; define must‑haves vs. nice‑to‑haves.
- Conduct due diligence on each property and its neighbourhood.
- Prepare for closing costs and moving expenses with a dedicated savings bucket.
- After closing, set up a home maintenance plan and emergency fund.
Buying a home in Canada is manageable with a clear plan. Understand the rules, set a realistic budget, and use the programs designed to help first‑time buyers. With the right team and habits, you’ll move in with confidence—and a mortgage you can live with.