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If your down payment is less than 20 per cent Add to ...

​If your down payment is less than 20% of the purchase price of the home you want to buy, a regular mortgage is out of your reach. Do you wait and save more, or buy now and borrow more? If you buy now, you'll have to get a costlier high-ratio mortgage or a second mortgage.

Save more and wait to buyBuy now and borrow more
​Interest costs

​Pay less interest

Pay more interest

​Other costs








​Don't have to buy mortgage insurance

Keep paying rent

May have to save even more if house prices rise

​Increased costs, as have to buy mortgage insurance and pay interest on it if you pay monthly

Stop paying rent and own more of home sooner

Buy at today's prices








​Risk spending what you've saved

Reduced risk of not being able to pay back loan if the value of your home drops and you have to sell

​Risk taking on more debt than you can handle

Increased risk of not paying loan if house prices rise and you have to sell

High-ratio mortgage

​A high-ratio mortgage lets you borrow up to 95% of the purchase price. But you’ll have to buy mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC) to cover the higher risk of this loan. You can pay for your insurance in a single lump sum when you buy your home. Or, add it to your mortgage and include it in your monthly payments. If you choose to pay the insurance monthly, you'll pay interest on it.

Example — Here's how much you would pay to insure your mortgage with CMHC on a $200,000 home — depending on the amount of your down payment.

​Down paymentAmount of mortgage​Interest rateCost of insurance
​$30,000 (15%)​$170,000​1.75%​$2,975
​$20,000 (10%)​$180,000​2%​$3,600
​$10,000 (5%)​$190,000​2.75%​$5,225


Second mortgage

First, you borrow as much as you can with a regular mortgage — also known as a first mortgage.

Then you get a second mortgage for the rest. You get this loan from a different lender. You'll usually pay a higher rate of interest for a second mortgage. The lender is taking a greater risk because it may not get its money back if you have to sell your home. That's because the lender that holds your first mortgage is first in line.

You may not qualify for the higher debt: When you apply for a mortgage, lenders add up your monthly housing costs and figure out what percentage they are of your gross household monthly income. This figure is called your Gross Debt Service (GDS) ratio. You won't be considered for a mortgage if your GDS ratio is more than 32%. Learn more about how lenders calculate the GDS ratio.

Content in this section is provided in partnership with Investor Education Fund, a non-profit organization founded and supported by the Ontario Securities Commission that provides unbiased and independent financial tools to help Canadians make better money decisions. To find out more, go to: GetSmarterAboutMoney.ca

Follow us on Twitter: @GlobeInvestor

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