How to Save for a Down Payment
To save up a down payment, you'll need:
To know approximately when you want to buy, so you know how long you have to save.
To decide where the money will come from — will you stop spending on other things or find a way to earn extra money?
To store the money in an account that will help it grow by earning interest.
Minimum down payment rules
In Canada, minimum down payment amounts depend on the home’s price. The lowest possible down payment is 5% of the purchase price for houses under $500,000.
Purchase price | Minimum down payment required |
|---|---|
Less than $500,000 | 5% of the purchase price |
$500,000 to $1,499,999 | 5% of the purchase price for the first $500,000; 10% for the portion above $500,000 |
$1.5 million or more | 20% of the purchase price |
» See the minimums in your province: Monthly Down Payment Monitor
Many people try to save a down payment of at least 20% of the purchase price so they can avoid mortgage default insurance, which is typically required if your down payment is smaller.
Others may apply for a mortgage as soon as they have the minimum down payment for homes in their area, to get into the market faster.
The strategy you use also depends on the amount of money you qualify to borrow from a mortgage lender.
Looking for down payment assistance?
Government programs can augment savings for first-time home buyers.
How to save a down payment
For many people, saving up a down payment isn’t a quick process.
For example, if you can manage to save $500 a month, it will take you 60 months, or 5 years, to reach a savings goal of $30,000.
If you can’t save that much each month, or you want to buy sooner, you might need to save for longer or adjust your expectations about the size, type or location of the home you’ll buy.
Whether you want to buy in the next two years or are saving for a purchase far in the future, there are a few strategies that can help you save a down payment more quickly.
Cut your expenses
If buying a home is your top priority, see if there are any costs you can reduce, such as entertainment, dining out, travel, etc. Every dollar you save on nonessentials can be put towards your home down payment.
More drastic measures could include selling your car, advertising for a roommate, or moving back home with your parents, if possible. These major life changes could significantly lower your monthly expenses.
If you have high-interest debt, such as outstanding credit card balances, consider paying that down before trying to save in earnest. Saving up a down payment is going to be harder, and potentially less productive, if you’re paying 20% or more in interest on a credit card. You could end up spending more to service your debt than what you can save.
Store savings in the right type of account
Saving up tens of thousands of dollars is hard work; storing those funds in an account that earns interest is a way to accelerate the process.
High-interest savings account (HISA)
High-interest savings accounts, particularly those offered by online banks, usually offer better rates of return than standard savings accounts. Taking the extra step to open a new HISA account could accelerate your savings significantly over time.
First home savings account (FHSA)
An FHSA is a tax-free account that helps Canadians save for their first home. If you’re at least 18 years old, you can open and contribute up to $8,000 per year towards a future home purchase via an FHSA. If you’re not able to contribute the full amount, you can carry up to $8,000 contribution room forward to the next year.
You can contribute up to $40,000 total to your FHSA, and you won’t pay income tax on funds you withdraw to buy or build your first home. Plus, your FHSA contributions are deductible on your income tax return.
Set up automatic transfers from your chequing account to your savings account. Then, as you adjust to saving, you can slowly increase the amount you’re transferring or make manual transfers when you have additional funds.
Plan ahead to take advantage of the Home Buyers’ Plan
The Home Buyers’ Plan (HBP) is a program that allows you to borrow up to $60,000 from your registered retirement savings plan (RRSP) tax-free. You need to repay the funds to your RRSP within 15 years.
Of course, you must contribute to your RRSP in order to borrow from it. So if you think you’ll want to use the HBP to help you make your down payment, start paying into your RRSP as early as possible. Each year, you can contribute up to either 18% of the income you earned in the previous year or a set amount (for 2024, it’s $32,490).
Choose lower-risk investments
For many people, the idea of saving a down payment for multiple years is challenging. They may start to wonder if it’s a good idea to invest their down payment so their money can grow faster. While it’s certainly possible to see some gains if you were to invest your down payment savings, this strategy could also backfire — and you could lose money.
If you plan to buy your first home in the next couple of years, your best bet is to keep your down payment in cash in a HISA or some type of tax-free savings account. For slightly more growth, you could also invest in a product that has minimal risks, such as a guaranteed investment certificate (GIC), which you can hold within your TFSA or FHSA.
DIVE EVEN DEEPER
Clay Jarvis
Clay Jarvis
Clay Jarvis