The real cost of buying a home in Canada, beyond the down payment
The down payment is the number everyone talks about, but it’s rarely the only cash you need on closing day. This guide walks through each cost in order, using a $700,000 first home in Ontario as the example.
1. The minimum down payment
The Financial Consumer Agency of Canada sets the minimum you must put down:
- 5% of the first $500,000 of the price,
- 10% of the portion from $500,000 up to $1.5 million,
- 20% of the whole price if the home costs $1.5 million or more.
For a $700,000 home: 5% of $500,000 is $25,000, plus 10% of the remaining $200,000 is $20,000, for a minimum of $45,000, about 6.4% of the price.
2. Mortgage default insurance
If you put down less than 20%, the mortgage must be insured (by CMHC, Sagen or Canada Guaranty). You pay a one-time premium, calculated as a percentage of the loan, that depends on how much of the price you’re borrowing:
| Loan as a share of the price | Premium on the loan |
|---|---|
| Up to 65% | 0.60% |
| 65.01% to 75% | 1.70% |
| 75.01% to 80% | 2.40% |
| 80.01% to 85% | 2.80% |
| 85.01% to 90% | 3.10% |
| 90.01% to 95% | 4.00% |
With $45,000 down, you borrow $655,000, which is 93.6% of the price, so the premium is 4.00%: $26,200. It’s usually added to the mortgage rather than paid up front, so you borrow $681,200 and pay interest on it for the life of the loan.
Insured mortgages can be paid off over at most 25 years, or 30 years for first-time buyers and buyers of newly built homes. Choosing 30 years adds 0.20 percentage points to the premium.
3. Sales tax on the insurance premium
This one surprises many buyers. Ontario, Quebec and Saskatchewan charge provincial sales tax on the premium (8%, 9% and 6% respectively), and it can’t be added to the mortgage. In our example, 8% of $26,200 is $2,096, due in cash at closing.
4. Land transfer tax
Most provinces charge a tax when a property changes hands, calculated in brackets like income tax. Ontario’s rates are:
| Part of the price | Rate |
|---|---|
| Up to $55,000 | 0.5% |
| $55,000 to $250,000 | 1.0% |
| $250,000 to $400,000 | 1.5% |
| $400,000 to $2,000,000 | 2.0% |
| Over $2,000,000 (one- and two-family homes) | 2.5% |
On $700,000 that’s $275 + $1,950 + $2,250 + $6,000 = $10,475. First-time buyers can get a rebate of up to $4,000, bringing it to $6,475.
In Toronto, you pay a municipal land transfer tax as well, at the same rates up to $3 million. A first-time buyer there gets a municipal rebate of up to $4,475, so the $700,000 home would cost $6,475 provincial plus $6,000 municipal: $12,475 in total.
5. The stress test
The stress test doesn’t cost money, but it decides how much you can borrow. Lenders must check that you could afford your payments at the higher of your contract rate plus 2 percentage points, or 5.25%. If you’re offered 4.5%, you qualify at 6.5%.
For an insured mortgage, your housing costs (mortgage payment, property tax, heating and half of any condo fees) generally must stay within 39% of your gross income, and all your debt payments together within 44%.
6. Everything else
Budget separately for a real estate lawyer or notary, title insurance, a home inspection, any property tax or utility adjustments the seller has prepaid, moving costs, and furnishing. These vary a lot by city and home, so get quotes early.
The $700,000 example, added up
| Item | Toronto, first-time buyer | Elsewhere in Ontario, first-time buyer |
|---|---|---|
| Minimum down payment | $45,000 | $45,000 |
| Sales tax on the insurance premium | $2,096 | $2,096 |
| Land transfer tax, after rebates | $12,475 | $6,475 |
| Cash before legal, inspection and moving | $59,571 | $53,571 |
The $26,200 insurance premium isn’t in the cash total because it’s added to the mortgage, but you still pay for it, with interest.
Run your own numbers
Our free Canadian Mortgage Calculator works out the minimum down payment, insurance premium and the tax on it, land transfer tax for your province and city, and what you can afford under the stress test, using the same rules as this guide.
Sources
- Financial Consumer Agency of Canada, Down payment rules
- CMHC, mortgage loan insurance premiums
- OSFI, Guideline B-20 minimum qualifying rate (the stress test)
- Government of Ontario, Calculating land transfer tax
Rules change, and lenders can be stricter than the minimums. This guide is general information, not financial advice. Confirm the details with your lender, mortgage broker or lawyer before you make an offer.