Buy vs rent guide
How much down payment? A buy vs rent view
The size of your down payment changes your monthly cost, your cash on day one and the buy vs rent result after ten years. This guide runs one illustrative $600,000 home at four down payments, so you can see the trade-offs side by side.
The minimum down payment rules
The federal minimum down payment is 5% of the first $500,000 of the price plus 10% of the portion from $500,000 to under $1.5 million. On homes at $1.5 million or more, the minimum is 20%. Insured mortgages are capped at purchase prices under $1.5 million. Check the current rules before you plan, since they can change.
On a $600,000 home, the minimum is therefore $25,000 plus $10,000, or $35,000. That is about 5.8% of the price, not 5%, so the lowest-down-payment case below uses $35,000.
Any down payment under 20% requires mortgage default insurance. The premium is a percentage of the loan: 4.00% for 5% to 9.99% down, 3.10% for 10% to 14.99% down and 2.80% for 15% to 19.99% down. It increases by 0.20% if the amortization exceeds 25 years. The premium is usually added to the mortgage, and provincial sales tax on it may apply in some provinces, so confirm locally. See CMHC insurance and buy vs rent.
Four down payments on a $600,000 home
Suppose a $600,000 home in Alberta, compared with renting at $2,300 a month. The assumptions are a 4.5% mortgage rate, a 25-year amortization, property tax of 0.65% of value a year, home insurance of $1,500 a year, maintenance at 1.0% of value a year, $150 a month for extra utilities, 3.5% yearly appreciation, 3% rent growth, renter's insurance of $300 a year, a 5.5% return on the renter's investments and a 10-year horizon. These are illustrative planning inputs, not market data.
Cash needed on day one is the down payment plus closing costs and moving costs. The premium is added to the mortgage, so it does not appear in day-one cash. The last column shows the buyer's net worth minus the renter's after 10 years, with selling costs deducted from the buyer.
| Down payment | Mortgage insurance premium | Cash needed on day one | First-month cost: owner vs renter | Buyer minus renter after 10 years |
|---|---|---|---|---|
| $35,000 (minimum, about 5.8%) | $22,600 (4.00%) | $41,490 | $4,352 vs $2,325 | +$14,314 |
| $60,000 (10%) | $16,740 (3.10%) | $66,460 | $4,181 vs $2,325 | +$21,100 |
| $120,000 (20%) | None | $126,380 | $3,757 vs $2,325 | +$41,686 |
| $210,000 (35%) | None | $216,290 | $3,259 vs $2,325 | +$32,287 |
What the comparison shows
A larger down payment lowers the monthly payment, because less is borrowed. In this example, the first-month owner cost falls from about $4,352 at the minimum to about $3,259 at 35% down. The renter's first-month cost stays at $2,325, so a bigger down payment narrows the monthly gap.
A smaller down payment gets you into a home sooner, but you borrow more and pay the premium. At the minimum, the loan is $587,600 including the $22,600 premium, and the buyer is ahead by about $14,314 after 10 years, with break-even at about 8.9 years. At 10% down, the lead is about $21,100 and break-even is about 8.1 years.
At 20% down, the premium disappears. The buyer leads by about $41,686 and break-even drops to about 5.7 years. At 35% down, the lead is smaller, about $32,287, with break-even at about 6.3 years. More cash in the home did not produce a bigger gain in this example, which is explained below.
The opportunity cost of a larger down payment
Every dollar you put into the home is a dollar the renter can invest instead. The engine reflects this by giving the renter the same upfront cash and the monthly savings. The principle is covered in the opportunity cost of a down payment.
The comparison depends on what that money could earn compared with your mortgage rate. With a 5.5% investment return and a 4.5% mortgage rate, an extra $90,000 down, the step from 20% to 35%, had a lower lead for the buyer (+$32,287 instead of +$41,686). If the renter's return is 3.5%, the order reverses: 35% down leads by about $109,491 and 20% down by about $99,779. At a 7% return, the buyer is behind in both cases, by about $34,402 at 35% down and about $8,038 at 20% down.
Returns are not guaranteed, and past results vary by period. The takeaway is that the right down payment depends on your alternatives, not on a single rule. See investment return assumptions and the down payment vs invest tool.
Renters can invest the same cash
In the comparison, the renter invests the cash the buyer would have spent. Registered accounts can help. The FHSA allows $8,000 a year and $40,000 in total, with deductible contributions and tax-free qualifying withdrawals for a first home. The RRSP Home Buyers' Plan lets you withdraw up to $60,000 per person, repaid over time. Check current details with the Canada Revenue Agency. Renters can use TFSA, RRSP and FHSA room too, so these accounts are not exclusive to buyers.
That is why the engine treats the two households symmetrically. See down payment sources: FHSA, RRSP and TFSA for how the accounts fit together.
Questions to ask before choosing a down payment
A calculator can compare outcomes, but it cannot tell you how much cash you should keep. A mortgage professional can explain your qualification, including the stress test, which requires you to qualify at the greater of your contract rate plus 2 percentage points or 5.25%.
- How much cash will I have left after the down payment, closing costs and moving?
- Could I cover several months of costs if my income dipped?
- What do I realistically expect to earn on money I do not put into the home?
- Is the premium worth paying to buy sooner, or would waiting to reach the next tier change the picture?
- How long do I expect to stay in the home?
Questions people ask
What is the minimum down payment on a $600,000 home?
Under the federal rule, it is 5% of the first $500,000 plus 10% of the remaining $100,000, which comes to $35,000. Check the current rule before you plan.
Is it better to wait until I have 20% down?
Not always. In the example above, the buyer was ahead after 10 years at every down payment tested, but the margin differed. Waiting also means paying rent in the meantime. Test your own numbers.
Does a bigger down payment always give a better result?
No. It reduces the loan and the monthly payment, but the cash could earn something elsewhere. In the example, 35% down led by less than 20% down at a 5.5% investment return.
Is the mortgage insurance premium paid upfront?
It is usually added to the mortgage, so you pay it over time with interest. Provincial sales tax on the premium may apply in some provinces.
Official references
Educational information, not financial, tax, legal or mortgage advice. Rules and rates change; confirm current details with an official source or a qualified professional.