Down Payments and Mortgage Default Insurance in Ontario: What First-Time Buyers Need to Know

Last updated: September 2026

TL;DR:

If your down payment is less than 20% of the home’s price, Canadian rules require mortgage default insurance. The minimum down payment is 5% on the first $500,000 of the purchase price, then 10% on the portion between $500,000 and $1.5 million, and 20% above that. The insurance protects the lender, not you — but you pay the premium, and it is usually added to your mortgage balance. Planning your down payment early helps you avoid surprises and borrow with confidence.

How much down payment do I actually need?

You need at least the minimum required by federal rules. The rules are tiered by purchase price.

For the first $500,000 of the price, the minimum down payment is 5%. For the portion of the price between $500,000 and $1.5 million, the minimum is 10% on that portion. For any amount above $1.5 million, the minimum is 20%.

Here is how that works in practice. On a $600,000 home, you would need 5% of the first $500,000 ($25,000) plus 10% of the remaining $100,000 ($10,000). That is $35,000 in total.

These are minimums, not recommendations. Putting down more than the minimum reduces your mortgage balance. A smaller mortgage means lower monthly payments and less interest paid over time. It can also help you avoid default insurance altogether if you reach 20%.

What is mortgage default insurance, and who does it protect?

Mortgage default insurance protects the lender, not the borrower. This is the single most misunderstood fact about it.

If you put down less than 20% of the purchase price, the lender is required to insure the mortgage. The insurance covers the lender’s losses if you cannot make your payments and the lender has to sell the property at a loss.

You are the one who pays the premium, even though you are not the one protected. That can feel unfair. Think of it this way: the insurance is the price of getting into the market with a smaller down payment. Without it, most lenders simply would not offer mortgages to buyers with less than 20% down.

One more important point. The insurance protects the lender against default. It does not protect you from losing your home if you stop paying. Your payments are still your responsibility.

How is the default insurance premium handled?

The premium is usually added to your mortgage balance. This is called capitalizing the premium.

Instead of paying the premium out of pocket at closing, most buyers roll it into the loan. For example, if your mortgage is $400,000 before the premium, the premium amount gets added on top, and your new mortgage balance becomes higher than $400,000. You then pay interest on that higher balance over the life of the loan.

This is convenient because you do not need extra cash at closing. But it has a cost: you are borrowing more money, so your payments are a little higher, and you pay interest on the premium amount itself. A larger down payment means a smaller premium, which means less added to your mortgage.

There is also a provincial sales tax on the premium in Ontario. Unlike the premium itself, this tax cannot be added to the mortgage. You pay it out of pocket at closing, along with your other closing costs.

What down payment should I aim for as a first-time buyer?

Aim for the most you can manage comfortably, without emptying your savings.

Many first-time buyers put down the minimum and get into the market sooner. That is a valid choice. The risk is a higher mortgage payment and the added insurance cost. Make sure your monthly budget can handle it, and leave a cushion for emergencies and moving costs.

Others wait and save a larger down payment. A bigger down payment lowers your payments and may eliminate the need for default insurance entirely. But waiting has its own cost: you are saving while prices and rents keep changing.

There is no single right answer. The right down payment for you depends on your income, your debts, your timeline, and how stable your job is. This is exactly the kind of decision where talking to a broker helps. A broker can run the numbers for different down payment amounts and show you the real monthly difference, so you decide with facts instead of guesswork.

Before you commit, use the mortgage calculator to see how different down payments change your monthly payment. And if your situation does not fit the standard bank rules — for example, if you are self-employed or buying with a smaller down payment — you may want to read about private mortgage options or the Ontario private mortgage rules to understand all your options.

What else do I need at closing besides the down payment?

The down payment is only part of the cash you need on closing day. Plan for closing costs on top of it.

Closing costs usually run between 1.5% and 4% of the purchase price in Ontario. They include the provincial land transfer tax, legal fees, title insurance, and the sales tax on the default insurance premium mentioned earlier. First-time buyers in Ontario may be eligible for a land transfer tax rebate, which lowers this bill.

This is where many buyers get caught off guard. They save exactly the minimum down payment, then discover they need thousands more for closing. Start your budget with the down payment, then add an estimate for closing costs on top. If you are buying in the Toronto area, you can also look at the Toronto private mortgage page for local context on how financing works in the GTA market.

Does a bigger down payment always win?

Not always. A bigger down payment is usually better, but it is not the whole picture.

One common mistake is putting every dollar into the down payment and leaving nothing in savings. Then the furnace breaks or a job change cuts income, and there is no cushion. A slightly smaller down payment with a healthy emergency fund is often the safer plan.

Another thing to weigh is the cost of waiting. If you spend two more years saving from 10% to 20%, you skip the insurance premium — but you also pay two more years of rent and risk prices moving while you save. Sometimes getting in earlier with the premium is the better financial move.

The smart approach is to compare both paths with real numbers: your income, your debts, your timeline, and the monthly payments each option gives you. That comparison is what turns a guess into a plan. A broker does this comparison every day, and can show you exactly what each down payment level costs you over time.

FAQ

Planning your down payment? Contact Kia Pakravan for Ontario mortgage advice. Phone: (416) 716-9696. Office: 12930 Yonge Street, Richmond Hill, ON. FSRA Licence #13380.