Mortgage FAQ

Down Payment

The down payment is the amount you will pay upfront to obtain a mortgage.

What’s my minimum down payment?

Your minimum down payment depends on the purchase price of your property.

  • If your purchase price is under $500,000, your minimum down payment is 5% of the purchase price.
  • If your purchase price is $500,000 to $999,999, your minimum down payment is 5% of the first $500,000, plus 10% of the remaining portion.
  • If your purchase price is $1,000,000 or more, your minimum down payment is 20% of the purchase price.

If you’re self-employed or have poor credit, your lender may require a higher down payment.

Are there additional costs or restrictions associated with small down payments?

Yes. If your down payment is below 20% of the purchase price,

  • you will be required to purchase mortgage default insurance, and so
  • your amortization period cannot exceed 25 years.

For more information, see the section on CMHC insurance below.

Amortization

The amortization period is the total length of time over which you plan to pay off your mortgage.

What amortization period should I choose?

While we cannot give advice for your specific situation, here are some general guidelines:

  • The most common amortization period in Canada is 25 years. Unless you have specific concerns, a 25 year amortization works well in most cases.
  • Choosing a shorter amortization period will lower your lifetime interest cost, but will result in a higher monthly or bi-weekly payment.
  • If you choose an amortization period of over 25 years, you must make at least 20% down payment. See the section on CMHC insurance below.

Term

The term of your mortgage is the length of time for which you sign a legal agreement with your lender. For the length of the term, you are obligated to their conditions and penalties.

What term should I choose?

The most common term length in Canada is 5 years. Unless you have specific concerns, a 5-year term generally works well. Each lender will offer different options for term length and rates; contact your lender for more details.

For professional help with determining which term is right for you, please .

What happens at the end of a term?

At the end of each term, you have the option to renew or refinance your mortgage.

  • Renewing your mortgage involves signing for another term with your existing lender. Your monthly payment and interest rate may change.
  • Refinancing your mortgage involves signing a new term agreement, possibly with a different rate or lender. Refinancing allows you to take advantage of lower rates or better options not offered by your current lender.

Interest Rates

The interest rate determines how much interest is added to the unpaid portion of your mortgage loan.

How does the interest rate affect the cost of my mortgage?

A higher interest rate can significantly increase your monthly or bi-weekly payment, as well as inflate the term and lifetime cost of your mortgage. Conversely, a lower interest rate can save you tens of thousands of dollars over time.

What’s the difference between a fixed and variable rate?

  • A fixed interest rate is guaranteed to remain unchanged for the length of your mortgage term.
  • A variable interest rate can change during your mortgage term. This will not affect your mortgage payment for the duration of the term, but adjusts what percentage of your payment goes to paying off the mortgage principal.

What controls a variable interest rate?

Your variable interest rate is directly controlled by your lender via their prime rate. Each lender can choose to increase or decrease their own prime rate, in turn increasing or decreasing your variable interest rate.

Lenders will usually adjust their prime rate to reflect changes in the Bank of Canada’s Policy Interest Rate. This means that lenders will tend to have similar or identical prime rates. All major Canadian banks currently have a prime rate of 3.95%.

Should I choose a fixed or variable rate?

Variable rates allow you to take advantage of future decreases in interest rate. On the other hand, fixed rates are preferable if interest rates rise in the future. Unfortunately, long-term fluctuations in the prime rate are difficult if not impossible to predict.

However, a 2001 study found that between 1950–2000, choosing a variable interest rate resulted in lower lifetime mortgage cost than a fixed rate up to 90% of the time. According to the study, if you are comfortable with the risks involved, a variable rate may reduce your long-term mortgage cost.

For professional help with determining which rate is right for you, please .

Payment Frequency

The payment frequency determines how often you will make mortgage payments.

What’s the difference between monthly and bi-weekly payment frequency?

  • A monthly mortgage payment is made once per month (12 times per year).
  • A bi-weekly payment is made once every two weeks (26 times per year).

Which payment schedule is right for me?

While we cannot give advice for your specific situation, here are some general guidelines:

  • Most people choose to synchronize their mortgage payments with their monthly or bi-weekly paycheck.
  • Choosing a bi-weekly payment schedule will slightly lower your term and lifetime mortgage cost.

CMHC Insurance

Mortgage default insurance, also known as Canada Mortgage and Housing Corporation (CMHC) Insurance, protects your mortgage lender in the case of default.

Do I need CMHC insurance?

Under Office of the Superintendent of Financial Institutions (OSFI) regulations, you are required to purchase CMHC insurance if your down payment is below 20%.

You may be ineligible for CMHC insurance if:

  • your purchase price is $1,000,000 or above, or
  • your amortization period is longer than 25 years.

In these cases, you must make a down payment of 20% or higher.

How much does CMHC insurance cost?

Your CMHC insurance cost is calculated as a percentage of your purchase price. The exact percentage depends on your down payment amount, and decreases for larger down payments.

Since March 17, 2017, the following CMHC premiums apply in most situations:

Down Payment (% of Purchase Price)5–9.99%10–14.99%15–19.99%
CMHC Insurance (% of Mortgage Amount)4.00%3.10%2.80%

How do I pay for CMHC insurance?

Your lender is actually the party responsible for paying CMHC insurance costs. In the majority of cases, your lender will pass these costs down to you by adding the CMHC insurance premium to your mortgage loan amount. This will slightly increase your monthly or bi-weekly payment.

In some cases, your lender may allow you to pay CMHC insurance costs as a lump-sum, or not pass down the cost to you at all. Contact your lender for more details.

What is a high-ratio mortgage?

A mortgage with a down payment below 20% is known as a high-ratio mortgage. The term ratio refers to the size of your mortgage loan amount as a percentage of your total purchase price.

All high-ratio mortgages require the purchase of CMHC insurance, since they generally carry a higher risk of default.

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* For mortgages of at least $500,000 with down payment under 20%.
Rates provided by Mortgauge Corporation. WOWA assumes no liability for the accuracy of information presented.
† For mortgages of at least $500,000 over a 25-year amortization period.

Land Transfer Tax

When you acquire a property (and the land it rests on), you must pay a land transfer tax to the government after the transaction closes.

Am I a first-time home-buyer?

Each province has their own definitions of a First-Time Home Buyer. Generally:

  • You must be at least 18 years of age.
  • You must be a Canadian citizen or permanent resident.
  • You must occupy the property as your principal residence.
  • You cannot have owned a home, or a stake in a home, anywhere in the world, at any time.
  • Your spouse/common-law partner cannot have owned a home while they were your partner.

How do I claim the refund?

You may claim an immediate refund (or exemption from the tax) at the time of registration.

I did not claim a rebate at the time of registration. Am I still eligible?

Yes. You may have up to an 18 month period after the registration of your new home to apply for a refund.

Can I get a rebate if I am not a citizen or permanent resident of Canada?

Yes, in certain cases. After the purchase of a property, you have an 18-month window following registration to obtain a rebate. If you gain citizenship or permanent residency during this period, you can claim the full rebate amount.

Government of Canada First-Time Home Buyer Incentive

For purchases registered after September 2, 2019 and closed after November 1, 2019, the Government of Canada offers a shared-equity incentive program for first-time home-buyers. The government will purchase 5% or 10% of your home, reducing the amount you will need to mortgage. You will need to repay the government-owned portion in the future.

Am I eligible for the program?

The program is only available for CMHC-insured mortgages. Therefore, you are automatically ineligible if

  • your purchase price is $600,000 or above, or
  • your down payment is at least 20% of your purchase price.

To qualify for a government shared-equity incentive,

  • you must be a citizen or permanent resident of Canada,
  • you or your partner must be a first-time home-buyer (see ‘Am I a first-time home-buyer?’ below), and
  • your annual household income cannot exceed $120,000.

Even if you satisfy these criteria, there are limits on how much you can borrow depending on your annual household income. See "What is the borrowing limit, and how does it work" below. Other criteria may apply in special situations.

Am I a first-time home-buyer?

You qualify as a first-time home-buyer if you satisfy at least one of the following conditions:

  • you have never purchased a home,
  • you have gone through a breakdown of marriage or common-law partnership,
  • in the last four years, you have not occupied a home owned by you or your partner.

Only one spouse/common-law partner needs to meet the above requirements to qualify.

How long does the program last?

The program launched September 2, 2019, and will end either:

  • after three years (September 2, 2022), or
  • when a total of $1.25 billion of incentives have been granted,

whichever occurs sooner. Many experts expect the funding to go quickly, so it may be prudent to act as soon as possible.

How much do I qualify for?

  • For existing, resale, or mobile/manufactured homes, you can apply for a 5% shared-equity incentive.
  • For newly constructed homes, you have the option of applying for a 5% or a 10% shared-equity incentive.

Borrowing limits may apply in both of these cases. See "What is the borrowing limit, and how does it work" section below.

What is the borrowing limit, and how does it work?

Your borrowing limit is four times your annual household income. Your total borrowing amount (mortgage principal + shared-equity incentive) cannot exceed this limit. The CMHC mortgage insurance premium does not count towards the limit.

No partial incentives are given. The only options are 5% and 10% shared-equity.

How much do I need to pay back?

The amount you owe depends on the future fair-market value of your property at the time of repayment. You will need pay 5% or 10% of your property's value, depending on which incentive program you applied for. No interest is charged in either case and both gains and losses are shared proportionally with the government.

When do I need to pay back the incentive?

You must pay back the incentive within 25 years or if the property is sold, whichever occurs first. You must pay the amount in one full lump-sum payment.

There are no prepayment fees or penalties for an early payment. If you believe your property's value will rise in the future, paying early may allow you to benefit from owning a greater share of the home's price appreciation.

I am buying a mobile or manufactured home. Am I eligible?

Yes. However, you can only apply for the 5% shared-equity incentive option, even if the home is new.

Examples

John and his wife want to buy a newly constructed home for $400,000. They would qualify for 10% of the purchase price, or $40,000, under the shared-equity incentive program.

At a 3% interest rate, this would lower their monthly payment from $1,870 to $1,673, saving them nearly $200 per month, or $60,000, over the lifetime of the mortgage.*

Assuming they make the minimum 5% ($20,000) down payment, John and his wife would need to make between $95,000 and $120,000 in total to qualify.

*Assuming a 5-year fixed term with 25-year amortization and 5% down payment.

Marissa makes $80,000 a year, and has $60,000 saved up for a down payment.. To qualify for the shared-equity incentive, she can purchase a home worth up to $380,000.

She buys a resale condo for $360,000. Marissa is eligible for $18,000 from the Government of Canada First-Time Home Buyer Incentive, allowing her to take out a mortgage of only $282,000 plus insurance.

RRSP Home Buyers’ Plan

As of March 19, 2019 (as part of Budget 2019), the Home Buyers’ Plan will allow first-time home buyers to withdraw up to $35,000 tax-free from their registered retirement savings plan (RRSP) to buy or build a home. The amount must be repaid over a period of 15 years.

This is a recent increase over the previous limit of $25,000.

Do I qualify for the Home Buyers’ Plan?

You must meet the following criteria to qualify for the Home Buyers’ Plan:

  • You must be a resident of Canada at the time of withdrawal.
  • You must be the owner of the RRSP(s) from which the withdrawals are made.
  • Your RRSP contributions must have stayed in the RRSP for at least 90 days before withdrawal.
  • Neither you nor your spouse/common-law partner can have owned the relevant home for more than 30 days.
  • Neither you nor your spouse/common-law partner can have owned another home in the last four years.

If you have a disability, the last requirement is waived. Additional requirements may apply in special cases.

What's the benefit of the Home Buyer's Plan?

The Home Buyer's Plan allows you to withdraw before-tax contributions to your RRSP for your downpayment. This can allow you to save significantly more for your downpayment than you would be able to with after-tax income.

For example, if you are in a 40% tax bracket and plan to save $10,000 towards your future downpayment every year, that $10,000 is equivalent to approximately $16,667 of before-tax income. With an RRSP, you would be able to contribute the full before-tax income amount to your future downpayment, allowing you to save 66% more from each paycheck compared to saving in a typical after-tax account.

You can find out more on RRSPs and the March 2nd contribution deadline with our Guide to RRSPs.

Is the withdrawal limit per person or per household?

The withdrawal limit is per-person. Each spouse/common-law partner has their own, separate withdrawal limit. If you are married or in a common-law relationship, you can withdraw a total of $70,000.

Note that only the person registered as the owner of an RRSP can withdraw from it under the program. Each spouse will need to have their own RRSP account to take advantage of the increased limit. There are also additional limitations regarding contributions to both individual and spousal RRSPs where contributions have to be made at least 90 days before the first withdrawal.

How do I make a withdrawal?

You must submit a Form T1036 to your financial institution for each withdrawal you wish to make.

How many withdrawals can I make?

You can make an unlimited number of withdrawals within one calendar year up to a total of $35,000. Withdrawals made during January of the following year are also tax-exempt. Because of this, we recommend either a single withdrawal or to start withdrawing early within the year.

When do I need to repay my withdrawals?

You have up to 15 years to repay the amount withdrawn to your RRSP. Repayments start the calendar year after the withdrawal is made. Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers’ Plan statement of account listing your remaining balance and minimum payment.

If you make more than your minimum payment, your later minimum payments will be reduced. You may repay the full loan amount at any time without penalty.

How do I make a repayment?

To make a repayment under the Home Buyers’ Plan (HBP), you need to make a contribution to your RRSP and designate a portion of the contribution as an HBP repayment. You may make this designation on line 246 of Schedule 7 when filing your next tax return.

Examples

Jessica and her husband want to buy a home in Toronto for $900,000, but only have $80,000 saved for a down payment. Assuming an interest rate of 3%, their monthly payment would normally be $4,036 per month.*

Jessica and her husband each withdraw $35,000 from their own RRSP account. In total, they make a down payment of $150,000, lowering their monthly mortgage payment to $3,649. That’s a savings of $387 per month, or $116,000 over the lifetime of their mortgage.

To repay the loan, they will need to make an annual payment of $4,667 for 15 years. No interest or tax is charged on the RRSP withdrawal.

*Assuming a 5-year fixed term with 25-year amortization.

Nathan purchased a home five years ago with the help of the RRSP Home Buyers’ Plan. He withdrew the maximum of $35,000, and has made the minimum $2,333 annual payment each year.

This year, however, Nathan can only afford to make a payment of $1,000. The missing $1,333 is filed as taxable income on his next return. Since his remaining balance is now larger than planned, his minimum payment increases to $2,481 starting next year. No other fees or penalties are charged.

This page is provided for general information purposes only. WOWA does not guarantee the accuracy of information shown, and assumes no responsibility for any consequences of its use.