Zero Down Beats Saving

Zero Down Mortgages in Ontario and Other Mortgage Facts

What is a Zero Down Payment Mortgage?

Lenders have been banned from offering full Zero Down Payment mortgages since 2008 in Canada. The current definition refers to buyers who take on a loan in addition to the mortgage to cover the down payment or some part of it. The loan can be a standard personal loan such as a line of credit, a Home Equity Line Of Credit against an existing property, credit card debt, or a loan from a relative.

First Off, A New and Risky Option, Zero Down

Zero down mortgages may seem impossible. Ontario mandates a five percent down minimum in cash. Ontario regulations permit taking mortgage insurance out to cover off the actual twenty percent down enforced to protect lenders. But they demand a buyer to front at least five percent of the property’s cost in cash. If the property’s price is over $500,000, the requirement for the amount over $500,000 is ten percent. Since there are virtually no home options in Ontario for less than $500,000, we are working with minimum down payments over 5% and up to 20%.

Ten percent of a million dollars is still $100,000. And then there are the closing costs which too must be paid in cash. That’s a lot of cash to expect from someone who is struggling to put a roof over their head. Many people just can’t save that much money.

Enter the zero-down payment option

Zero down mortgages can mean a few things. But they all amount to the same. Borrow money to make the down payment for the mortgage. This additional loan cannot come from the primary mortgage lender. They are prohibited from lending the mortgage and a loan for the down payment.

Alternative Lenders for the No Down Payment Option

It will take a good credit score and a steady job to qualify for the down payment loan. Anyone could understand that lenders are weary of someone carrying two burdensome loans against the same property.

Big banks might not be the best place to look for the No Down Payment Loan. Alternative lender or B-lenders options in Canada include Credit Unions, Mortgage-specific lenders, or even smaller banks. Names such as Manulife, Meridian, Canadian Western Bank, Duca, Alterna, ICIC, First National, Cannect, and Equitable Bank should be on your radar.

What kind of loans can be used for down payments in Ontario?

  • Line of Credit: Banks often extend these flexible loans to customers. The amount available varies based on internal rules and your personal financial situation. But it is a good option if not for the entire down payment amount, then a portion of it.
  • HELOCs: If you already own a property, a Home Equity Line of Credit uses the equity built into that property as collateral for a loan. This is true, but an unlikely option for someone struggling to make a down payment on a second property.
  • Personal Loans: Alternative lenders might be the ticket for a personal loan. It is an unsecured loan based on your personal financial history.
  • Family Loans or Gifts: If you can wrangle it, you should try. Some people are gifting their children the money that traditionally would have made up their inheritance. The gift is likely not taxable as the tax would have already been paid through personal income taxes on the gifter’s side. Parents or relatives can often gift or loan you money without tax consequences on either side.

Should You Consider a Zero Down Payment Mortgage?

Wow. Would RBC or a Mortgage Broker tell you this? Maybe, but I doubt it. They’re in the business of selling you loans. is not financially impacted by whether or not you take a loan or a mortgage. Here goes: no we would not recommend it without some strong mitigating factor. Are you waiting on an inheritance that should come through in the next three months? The zero down payment loan would then just be a temporary or bridge-loan. Or maybe you were gifted $80,000 and need $14,000 more to bridge the gap. Then the loan seems to make some sense to us.

However, taking on a $100,000 personally backed loan just to qualify for another $900,000 loan sounds risky. Especially at today’s loan rates. And the personal loan or line of credit or whatever will almost for sure come in at a higher rate than any mortgage. Don’t forget the cash required at closing.

More Traditional Mortgage Approaches

Purchasing a home is a significant milestone for many individuals and families. One of the key factors to consider when buying a home is the mortgage down payment. Understanding the various options and requirements for mortgage down payments is essential for making informed decisions about home ownership.

In this comprehensive guide, we will explore everything you need to know about mortgage down payments in Ontario. From the minimum down payment required for different types of homes to the available assistance programs and options for first-time homebuyers, we will cover it all. We will also discuss the impact of down payments on mortgage insurance and monthly mortgage payments, as well as strategies for saving for a down payment.

Whether you are a first-time homebuyer or looking to move up to a larger home, this guide will provide you with the information you need to navigate the mortgage down payment process in Ontario with confidence.

Buy a Home or Buy a New Car?

The answer is up to and it is about priorities. If you prioritize home ownership, the car can probably wait. The upfront costs of home ownership are significantly more than just about any new car’s total cost. Read on and you’ll get a sense of that.

With Interest Rates so High What Will My Monthly Payment Amount Be?

Maybe the better question would be, how much can I afford to pay per month? Interest rates change all of the time. They are high right now after we’ve been spoiled for years with low ones. You can check any online calculator to figure out what the payment will be, that’s easy. The hard part is reconciling if you can afford it. The answer is complicated by factors that are different for everyone and even you, over time. Maybe you have three kids now. Maybe you have three kids later (congrats). Maybe you’re expecting an inheritance that never comes. Maybe you get a raise, maybe you get laid off. Nobody knows, but you have to make rational and maybe conservative decisions when it comes to what may be the biggest investment of your life.

That means, you have to take on a reasonable property commitment whose upfront and ongoing costs don’t cripple you financially. So, define what affordable means to you; according to many talking heads, a measure is not to spend more than 32% of your gross household income on where you live. If you and your partner are on the same page and have a nice household income of $150,000 before taxes (gross), then your budget could be 48,000 per year for housing. That is $4,000 a month.

Think Big Picture

Now, do not run out and get a loan with a $4,000 a month payment. You still have to insure the place, maintain the place, pay property taxes, paint, renovate, heat, cool, furnish, etc. You might only actually be able to take on a loan with a $2,000 a month bill. And don’t forget, you are working out if you can afford the place now, 3 years from now, and so on. And you also have to consider changes in interest rates, up or down.

Use that fancy online calculator to determine what you can actually afford. The key to success is in not forgetting that housing comes not only with a big monthly loan payment, but many more financial obligations. Do not live beyond your means. The secret to long term wealth and immediate comfort is to live below your means and certainly not above them.

Ontario’s Real Estate Market and Impact on Mortgage Down Payments

The Ontario real estate market has been increasingly competitive, with rising home prices making it difficult for many Canadians to enter the market. Prospective homebuyers encounter the hurdle of amassing more substantial down payments to secure a property. The market impact of this trend has been significant, with many individuals and families struggling to save enough money for a down payment, especially in the Greater Toronto Area where prices continue to soar.

This has led to increased pressure on mortgage lenders to offer flexible financing options and smaller down payment requirements in order to accommodate potential buyers. Additionally, the demand for affordable housing and the need for more accessible down payment assistance programs have become urgent issues for policymakers and real estate stakeholders. As the Ontario real estate market remains competitive, the impact on mortgage down payments continues to be a concern for both aspiring homeowners and industry professionals. 

How to Calculate Mortgage Down Payments in Ontario

When it comes to home buying in Ontario, understanding mortgage calculations and down payments is crucial. To calculate a mortgage down payment in Ontario, you need to consider the purchase price of the home and the minimum down payment required by the lender.

In Canada, for homes priced under $500,000, the minimum down payment is 5% of the purchase price. For homes priced between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000 and 10% of any amount over $500,000.

For homes priced at $1 million or more, a minimum of 20% down payment is required. Using these percentages, you can calculate the exact amount of down payment required for your desired property.

It’s important to consult with a mortgage advisor or a lender to understand the specific down payment requirements and to explore all available options for financing your home purchase. Taking the time to fully comprehend mortgage calculations and down payments will empower you to make well-informed decisions when embarking on the journey of home ownership in Ontario.

To calculate the down payment for a specific property in Ontario, you can simply multiply the purchase price by the required percentage, for example, if you are buying a house for $400,000, your minimum down payment will be $20,000 (5% of 400,000). However, it is important to remember that a larger down payment can lead to lower monthly mortgage payments and less interest over the life of the mortgage, so it’s always a good idea to save as much as possible. Understanding how to calculate mortgage down payments in Ontario can help potential homebuyers better plan and budget for their purchase.

Tips to Save for Your Mortgage Down Payment

Owning a home is often a significant financial goal many aspire to but accumulating sufficient funds for mortgage down payments can be a daunting task. However, with strategic saving tips, this goal can become achievable.

Start by setting up a high-interest savings account exclusively for your mortgage down payment. This approach not only secures your funds but also grows them over time.

Secondly, automate your savings by setting up direct deposits into this account. By setting aside a portion of your income each month, you can gradually accumulate the necessary funds. This incremental approach facilitates saving.

Reducing unnecessary expenses and prioritizing savings can also boost your fund. Consider implementing a budget, cutting on luxuries, eating out less, and reducing miscellaneous expenses.

Opting for a smaller, affordable property, instead of an expensive one, can also reduce the amount you need to save.

Finally, take advantage of government programs in Ontario, such as the Home Buyers’ Plan, which allows first-time buyers to withdraw from their Registered Retirement Savings Plan without tax repercussions.

Remember, achieving your dream of homeownership in Ontario requires patience, commitment, and smart saving strategies for your mortgage down payments.

Understanding CMHC Insurance and its Role in Mortgage Down Payments

Canada Mortgage and Housing Corporation (CMHC) insurance is required by the Canadian government for homebuyers making a down payment of less than 20% of the home’s total price. It safeguards lenders and is a percentage cost of the loan amount, added to mortgage payments. The primary function of the CMHC insurance is to protect lenders in the case a borrower defaults on the mortgage, thus ensuring the stability of the financial system in Canada. It is pertinent for prospective homebuyers to understand the role of CMHC insurance in mortgage down payments to facilitate their journey towards homeownership.

If a homebuyer is able to afford the standard 20% down payment for a home, CMHC insurance does not apply. But, when the down payment falls below this mark, the insurance comes into play. CMHC insurance, intended to protect lenders, is ultimately covered by borrowers. Its cost, a percentage of the loan amount, depends on the down payment’s size and is incorporated into mortgage payments.

For buyers who can’t afford a huge up-front payment, CMHC insurance offers a way to get into the housing market with a lower down payment. However, it’s important to understand that with a smaller down payment and added CMHC insurance, the size of the mortgage will definitely increase, leading to higher monthly repayments. So, while it may facilitate entering the real estate market earlier, it also means higher overall costs in the long run.

In essence, the role of CMHC insurance in mortgage down payments is twofold. It provides security for lenders in case of mortgage default while offering potential homeowners an avenue to step onto the property ladder with lower upfront costs.

The Pros and Cons of Making a Large Down Payment in Ontario

Large down payments in Ontario provide significant financial advantages while warranting careful consideration due to associated drawbacks. Among the principal advantages of making a large down payment is the potential to secure lower mortgage interest rates. Lenders tend to favour large upfront payments, allowing them to reduce their risk, which can lead to discounts on the overall borrowing cost. As a result, one ends up paying significantly less over the term of the mortgage. Additionally, a substantial down payment lowers the loan-to-value ratio, reducing the need for mortgage loan insurance and potentially leading to significant cost savings.


However, while certainly advantageous, large down payments come with their own set of drawbacks. One of the primary concerns is the financial strain that can occur. Most borrowers tie up a significant part of their savings to make a large down payment which can potentially limit their cash flow and leave them financially vulnerable if unexpected expenses arise. Additionally, there might be better investment opportunities available that could yield a higher return than the amount saved on mortgage interest.

Given the pros and cons, the decision to make a large down payment in Ontario largely depends on personal financial circumstances and the individual’s property investment strategy.

Regardless, it is advisable to consult a financial advisor who can provide personal advice tailored to the individual’s situation and future financial goals. They can assist in gauging the optimal down payment size that allows for a comfortable mortgage and maintains a healthy savings account for unexpected costs.

The decision regarding down payment size should not be rushed, as it can have lasting financial implications. The key is to strike a balance between utilizing one’s saved finances to make a substantial down payment, and ensuring one has sufficient funds to handle other financial responsibilities. Large down payments on Ontario mortgages offer significant advantages but require careful consideration due to potential drawbacks. 

Low Down Payment Mortgage Options in Ontario

Navigating the low down payment mortgage options in Ontario can also be complex due to the varied terms, interest rates, and conditions set by different mortgage companies and lenders. Mortgage options with low down payments in Ontario include the typical conventional low down payment mortgage, where you put down less than 20% and make up for the lack of initial payment with Private Mortgage Insurance (PMI). Another choice is the Ontario Home Ownership Savings Plan (OHOSP) tailored for first-time homebuyers under 40. It permits a down payment as low as 5% and offers various tax benefits.

Mortgage Insurance

Ontario’s special mortgage insurance program is also an option worth exploring. The program permits eligible first-time homebuyers to secure a low down payment mortgage with insurance, enabling them to purchase a home with as little as a 5% down payment. Several other programs such as the Canada Mortgage and Housing Corporation (CMHC) and Genworth Canada, offer similar services.

These options alleviate the initial financial burden but lead to higher monthly mortgage payments and a higher total cost due to interest. Prospective homeowners must assess their financial situation, understand the pros and cons, and choose their mortgage option wisely.

Potential Ontario homeowners can benefit by using a mortgage broker or banking officer to navigate mortgage options finding the most suitable lending plan. These professionals provide guidance based on individual needs and financial circumstances. These professionals receive training to comprehend an individual’s financial circumstances and assist them in navigating various mortgage choices. They ensure clients grasp the advantages and costs of each option. Prospective Ontario homeowners should also factor in additional expenses like closing costs and home insurance. While low down payment mortgage options are available, it’s vital to consider the broader financial aspects when selecting a mortgage.

Effect of Credit Scores on Mortgage Down Payments

Your credit score, also known as a credit rating, can considerably affect your mortgage down payments. A credit score, derived from a thorough analysis of credit records, is vital for mortgage approval and down payment determination. Lenders rely on this numerical representation to assess an individual’s creditworthiness when deciding on mortgage approval and down payment amounts.

A high credit score signals responsible debt management to lenders, increasing confidence in on-time mortgage payments. As a result, you might qualify for lower Mortgage Down Payments. On the contrary, if you have a lower credit score, lenders perceive you as a potential risk. They may require a higher mortgage down payment due to the increased possibility of defaulting.

Furthermore, a low credit score may not only affect the down payment but also the interest rate on the mortgage. Hence, it is important to maintain a good credit score as it provides the advantage of better interest rates. In fact, many Canadians are denied a mortgage because their credit score doesn’t meet the lender’s requirements.

For instance, most traditional lenders in Ontario require a minimum credit score of 600. However, alternative lenders might approve a mortgage with a lower credit score but at a higher down payment and rate. Your credit score plays a crucial role in mortgage qualification and impacts Ontario’s down payments. Regularly checking your credit report and working to improve your score can secure favorable mortgage terms and conditions.

First-Time Homebuyer Programs in Ontario and their Impact on Down Payments

First-Time Homebuyer programs in Ontario offer substantial support, notably reducing mortgage down payments. They have significantly increased access to homeownership for those who might have found initial costs prohibitive.

The Land Transfer Tax Refund is a notable program aimed at assisting first-time homebuyers in Ontario. This program can significantly reduce the land transfer tax, reducing the costs of buying a home in Ontario

The Home Buyers’ Plan permits Ontario individuals to borrow up to $35,000 from their RRSPs for a down payment. The are no tax penalties as long as conditions are met. This program eases the financial burden of purchasing a home.

The First-Time Home Buyer Incentive (FTHBI) program in Ontario aims to lower monthly mortgage payments without increasing the required down payment amount. This is achieved through a shared equity mortgage with the Government of Canada, enabling more people to enter homeownership. Under the Ontario Home Ownership Savings Plan, First-Time Homebuyers are eligible for tax credits hence reducing their overall costs.

These comprehensive programs have considerably mitigated the traditionally high costs associated with mortgage down payments. These initiatives have had a significant impact, increasing homeownership among Ontario residents and boosting the real estate sector. As a result, the daunting prospect of substantial mortgage down payments is no longer a stumbling block for prospective homeowners in Ontario.

Therefore, Ontario’s First-Time Homebuyer Programs have had a crucial role in facilitating homeownership, greatly influencing mortgage down payments, lending accessibility and affordability to the housing market.

Common Myths about Mortgage Down Payments

Common mortgage myths in Ontario can mislead potential homeowners, leading to misconceptions about down payment requirements for residential properties.

One of the most prevalent myths is that a 20% down payment is mandatory. Ontario regulations allow a minimum 5% down payment for homes priced below $500,000. Homes priced between $500,000 and $999,999 in Ontario require a down payment structure. Buyers provide 5% down on the first $500,000 and an additional 10% on the remaining price. This outlines the down payment requirements based on the property’s price range, ensuring clarity for potential buyers.. Most importantly, a down payment of less than 20% would entail the need for mortgage loan insurance.

Another widely believed myth is that down payments must come from personal savings. Indeed, personal savings are a primary source, but down payment funds can also come from RRSP withdrawals or financial gifts from family.

Additionally, some people believe that first-time homeowners have to present the down payment upfront. Ontario’s Home Buyers’ Plan permits first-time buyers to borrow up to $35,000 from their RRSP without tax penalties for down payments. Familiarizing themselves with facts helps Ontario homebuyers debunk common mortgage myths and navigate the buying process more effectively.

Renting vs. Buying a Home: Down Payment Considerations in Ontario

Deciding to rent or buy in Ontario depends on factors, with the down payment being a primary consideration.. On one hand, renting might seem more financially viable in the short term because it typically involves lower initial costs.

Renters typically only need to worry about security deposits, which are typically equal to one month’s rent. On the other hand, the prospect of buying might seem more appealing in the long term. However, buying requires a significant initial investment, especially the down payment.

Home buyers must provide a minimum down payment of 5% for homes priced at $500,000 or less. For homes above that price range, the down payment requirement ranges from 10% to 20%. This means a home costing $600,000 would require a down payment of at least $35,000. Homeownership can build equity and yield long-term financial gains, but it carries significant financial risks linked to housing market fluctuations. Therefore, one needs to consider their financial stability and readiness before making such a commitment.

Consider additional costs like property taxes, insurance, closing expenses, and maintenance in homeownership. The decision between renting and buying hinges on financial readiness, long-term goals, and market conditions. While the down payment is crucial, it’s just one factor in this choice in Ontario.

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