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Making a Down Payment
When you apply for a mortgage, you need to raise money for a down payment, that portion of the purchase price you furnish yourself (your mortgage covers the balance).
Well before you start house hunting, you should determine how much of a down payment-which represents your financial stake, or the equity in your new home-you can afford. Explore the links below to review your options and some important considerations:
Mortgage Options Based on Your Down Payment
- If your down payment is 20% or more of the home's purchase price, you can apply for a conventional mortgage. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
- If your down payment is less than 20% (say 5% or 10%), you can apply for an insured mortgage. With an insured mortgage, you require mortgage default insurance from a provider and RBC Royal Bank can help. These premiums can be either paid up front, or added to the mortgage and paid off as mortgage payments are made.
Saving Money with a Larger Down Payment
It's to your advantage to put down as much money as you can because interest costs for a smaller mortgage are lower-adding up to significant savings over the long run.
The table below shows how an average homeowner can save more than $25,000 in interest costs on a $100,000 home by making a down payment of 25% versus the minimum down payment of 5%.
| Down Payment % |
Down Payment Amount |
Mortgage Principal |
Total Interest Paid* |
| 5% |
$5,000 |
$95,000 |
$122,512 |
| 10% |
$10,000 |
$90,000 |
$116,063 |
| 25% |
$25,000 |
$75,000 |
$96,717 |
Funding Your Down Payment
Where can you find the money for your down payment? Here are some common strategies:
- Dip into savings you have accumulated over time.
- If you're a first-time home buyer, you can use your RRSPs as a down payment. Learn about using your RRSPs.
- Secure a "nest egg" from a parent or relative.
No matter the size of your down payment, be sure to reserve some funds to cover your home inspection, closing costs, moving and other potential expenses. Ask your real estate agent how much you might want to set aside.
* Total interest paid assuming a constant interest rate of 8% repaid over a 25-year amortization period. The scenario does not include the default insurance premium.
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