Most Canadians dream of buying a house. It is a great investment and provides stability and security in life. For most people, their most valuable asset is their home.
But most Canadians need a mortgage to make this dream come true. If you also dream of buying your own house, you will want to know what it takes to get approved for a mortgage and the average mortgage cost in Canada.
In this article, we aim to provide you with as much information as possible regarding applying for a mortgage and how much you need for a down payment and monthly mortgage payments.
Hopefully, this will help you prepare for your home purchase and find the best mortgage that suits your needs.
You can also compare FREE and NO-OBLIGATION quotes from top mortgage brokers near you by filling out the form on this page.
How do mortgages work?
When you are buying a house, you need to borrow funds to pay for the cost of the property minus your down payment. Unless, of course, you can pay for the full amount in cash.
In Canada, homebuyers can choose to pay as little as 10% of the selling price and obtain a mortgage for the remaining 90%. In such cases, you will have to get mortgage default insurance if you have less than 20% for your down payment.
You can also choose to pay a down payment of 20% or higher to reduce the amount of your mortgage and save on interest payments.
To get a mortgage, you need to be approved by a lender based on criteria that include your job, income, and credit history, among other things.
A lender will determine how much you can borrow based on your income and liabilities. Lenders also use a mortgage stress test to determine your capacity to pay.
Once you are approved for a mortgage, you can prepare to pay the closing costs (legal fees, taxes, transfer fees, etc.).
The monthly mortgage payment will depend on the amount you borrow, the mortgage type you choose, the term of your loan, and the interest rate.
The best way to secure a mortgage with favorable interest rates and conditions is through a reputable mortgage broker.
You can find the best mortgage that suits your needs with our partner mortgage brokers, free of charge! Just fill out the form on this page to get FREE and NO COMMITMENT quotes!
The average mortgage cost in Canada’s major cities
In the latter part of 2020, Toronto and Vancouver were at the top of the list for having the highest mortgage payment costs. In Vancouver, homeowners paid an average of C$2,320 while homeowners in Toronto had an average mortgage payment of C$2,230.
Despite the COVID-19 pandemic, mortgage loans in 2021 increased by as about 60% from the same period last year with around 410,000 Canadians with new mortgages.
According to Equifax, the average home loan was $355,000 for the second quarter of 2021, up by 20% from the same period in 2020.
Below you will find a summary of the average monthly mortgage payments of selected cities:
***data from CMHC report, source Equifax
With interest rates seeing their lowest levels, millions of Canadians spending more time at home wanted to buy their own home or get bigger spaces.
New mortgages are higher due to a surge in home prices. The average home price in Canada as of October 2021 is $686,650, with a 13.9% increase compared to prices in Sept. 2020.
If you plan on buying your own house, now may be the best time to consider a home purchase, with mortgage rates being at their lowest.
Find a reputable mortgage broker from our network to help you get the right mortgage for your needs!
How much do you need for a down payment to buy a house?
To buy your first home requires patience and diligence. It may take a few years to save enough for a down payment. As hard as it may be, it is worth the effort because homeownership is a good financial strategy for building wealth.
However, the question of the down payment is also one of the biggest hurdles that Canadians face towards home ownership. It can take from 6 to 10 years to save enough, depending on the cost of the property you wish to buy.
Mortgage regulations in Canada aim to ease the challenge of paying 20% for the down payment, the minimum requirement for conventional mortgages. For a house with a selling price of $650,000, 20% will be $130,000, surely not an insignificant amount.
Hence, homebuyers in Canada can now buy a house with as little as 5% for the down payment, as long as the property is valued at $500,000 or less. For properties with a tag price above $500,000 but less than $1 Million, the amount in excess of $500,000 will need a minimum down payment of 10%.
You will find that you have several options for your down payment to enable you to buy a house sooner rather than later.
The less you have to borrow for your mortgage, the lower the interest you will be paying over the life of your mortgage.
Rising home prices in 2021 make it more difficult for homebuyers to save for a down payment. In fact, the National Bank of Canada reported that in the 2nd quarter of 2021, the affordability of housing has increased by the widest margin seen in 27 years.
To give you a better idea of how much you will need for your down payment, let’s take a look at the average costs of down payments in major cities in Canada.
The average home price in Vancouver for a detached home is $1,828, 200. This means that you need about $365,000 for a down payment, plus closing costs. Since the average price is above $1 Million, you need at least 20% for your down payment.
The average price for a townhouse is $963,000. You can buy a townhouse with at least 10%, or about $96,300 plus closing costs. A condo costs, on average, around $738,600.
Home prices in Victoria are slightly lower than in Vancouver, with a standard home costing on average around $1.03 Million.
Thus, you need about $200,000 for your down payment plus closing costs.
Housing affordability is much better in the province of Quebec. In Montreal, the average home price for a single-detached home is $500,000. Hence, if you save about 1/10 of your pre-tax income, it could take you as little as 3 years to save up for your down payment for a house.
You need about $100,000 for a 20% down payment plus closing costs for a conventional mortgage. The good news is that you can buy a house with as little as $25,000 in savings for a 5% down payment or $50,000 for a down payment of 10%.
A condo unit costs on average about $375,000 while a plex has a median selling price of $679,750.
Don’t forget you will need a little more to pay for closing costs such as legal fees, taxes, and transfer fees.
A representative home in Quebec City costs an average price of $373,000. You need a minimum of $18,650 for a down payment of 5% or $37,300 if you can afford a 10% down payment.
A conventional (uninsured) mortgage would require a 20% down payment of $74,600 plus closing costs.
The average price for condominiums went up by 31% in the 2nd quarter of 2021 to reach $335,000.
A single-detached home in Ottawa costs around $702,155. It is possible to pay only 5% down payment for the first $500,000 or about $25,000 and 10% for the remaining balance (roughly around $20,000. Hence, you can buy a house with a minimum down payment of $45,000 plus closing costs.
If you wish to pay at least 20%, you need $140,431 plus closing costs.
A condo apartment sells for an average price of $425,362, which you can buy for $21,268 for a 5% down payment or $42,536 with a 10% down payment.
Everybody knows that housing affordability is low in Toronto because home prices are skyrocketing. In the Greater Toronto Area, a single-detached home has an average price of $1,526,465, up by 20% from prices in the same period in 2020.
Thus, you will need at least $305,293 to pay for the 20% down-payment plus closing costs.
A condo apartment has a median price of $708,521, up by 12% from last year while a townhouse costs on average $1,016,269. A semi-detached home has a median price of $1,114,696, up by 21% from last year’s price.
A single-detached house in Hamilton has a median price of $874,925. You can pay a down payment of 5% for the first $500,000 and 10% for the remaining balance. Hence, you need at least $62,492 for a minimum down payment plus closing costs.
A condo apartment has a median price of $480,947 which you can buy with as little as $25,000 for your down payment. A townhouse has a median price of $700,215 which will need about $45,021 for a minimum down payment.
In Edmonton, a single-family home has an average price of $453,011 as of Sept. 2021. This shows a 3% increase from the average price in the same period last year. You can buy a house with a 5% down payment of $22,650 or $45,301 with a 10% down payment.
A townhouse is more affordable at an average price of $337,236 while a condo has an average price of $224,212.
A single-detached house in Calgary has a median price of $581,104. You can also pay only 5% for the first $500,000 or about $25,000 and 10% on the remaining balance. Thus, you can buy a single-family home if you have about $33,100 in savings.
A townhouse has a median price of $315,975 while a condo apartment has a median price of $257,687.
While prices of detached homes increased by 3% compared to the same period last year, the prices of condo apartments and townhouses went down by 1% and 4%, respectively.
Housing affordability is also higher in Winnipeg with the average cost of a detached home at $377,789. You can buy a house with a down payment of 5% at $18,889 or with a 10% down payment of $37,778 plus closing costs.
An attached house sells on average for $321,334 while a condo apartment has a median price of $258,770.
Real estate prices in Winnipeg went up by 7% for detached homes and 18% for attached homes. Condo apartment prices went up by 10% compared to last year.
Data was based on the Residential Property Index published by Statistics Canada.
It is best to consult a mortgage expert who can help you explore your mortgage and down payment options. You can connect with the best mortgage brokers in your area using our short online form, free of charge!
FAQs about Mortgages and Mortgage brokers
You are here because you may be seriously considering getting a mortgage or wanting to find a good mortgage broker.
We understand you may have important questions you need answers to so you can make the right decisions about your home purchase.
We have gathered some FAQs about mortgages and mortgage brokers to assist you in planning your project.
What do mortgage brokers do?
Mortgage brokers are mortgage professionals that help people planning to buy a house to obtain a mortgage from lenders. They explain your options, the pros and cons of mortgage types, and shop on your behalf for the best mortgage product and rates among different lenders.
When you are ready to apply for a mortgage, a broker will assist you with a pre-approval so you can lock in your rate while you look for your ideal home. Brokers don’t charge you for their services as they are compensated by the lender you choose for your mortgage.
Why is it better to use a mortgage broker to apply for a mortgage?
It is much better to approach a mortgage broker to apply for a mortgage rather than go to a bank directly. This is because a bank will only offer you its own mortgage products and rates. You will not be able to compare it with other lenders unless you approach and apply with several lenders. This can be time-consuming and confusing.
In contrast, you can compare multiple lenders with a mortgage broker and apply only once. This saves you time and money and makes applying for a mortgage less complicated.
How can I get a mortgage?
To get approved for a mortgage, you need to prove that you have a stable income, good credit history, and the capacity to pay the minimum down payment for a house. Lenders will check your profile and approve the amount you can borrow based on your financial capacity.
You also need to comply with mortgage regulations such as getting mortgage default insurance if you pay less than 20% down payment and pass a mortgage stress test.
You can get a mortgage pre-qualification through a good mortgage broker from our network. If you pre-qualify, you will know how much you can borrow and look for a property that is within your budget.
Why do I need a mortgage pre-approval?
A mortgage pre-approval is the first step when you plan to buy a house. You will know whether you can get approved for a mortgage and how much you can borrow. This will help you to establish your budget and save you time by allowing you to look only at properties you can afford to buy.
A mortgage pre-approval will also allow you to lock in your mortgage rate while you are shopping for a house. It will give you the confidence you need to make an offer once you find your dream home.
How much should I pay for a down payment?
The minimum amount for a down payment for a house in Canada is 5% if the property price is $500,000 or less. The portion above $500,000 but less than $1 Million requires at least 10%.
The lower your mortgage amount is, the lower the interest payments you will make during the life cycle of your mortgage. It will also allow you to build equity faster.
However, you should also consider the amount of time you need to save enough for a down payment because real estate prices keep rising. If you want to buy a house sooner, you can consider paying a smaller down payment.
How does the down payment amount affect mortgage payments?
If you make a bigger down payment than the minimum requirements, you need to borrow less for your mortgage and have lower monthly payments. You also pay less interest and can pay off your loan faster. The lower your interest payment, the faster you can build home equity, too.
What can help me with the down payment needed to buy a house?
The Home Buyers Plan (HBP) allows first-time buyers to borrow from the RRSP from $35,000 to $70,000 (for a couple) that can be used for the down payment.
This is a tax-free, interest-free loan that you can repay for 15 years. This can help you prepare the down payment so you can buy a house sooner.
What should I look for in a mortgage?
A mortgage offer from a lender consists of payment for the loan amount and the interest via monthly payments. The interest will comprise the biggest expense so it is ideal to find the lowest possible rate with easy repayment terms.
Most lenders offer basic terms because they are regulated by the government but there are differences in some aspects such as the interest rate, closing cost, prepayment penalties, legal fees, etc.
Make sure to look at these factors when choosing a mortgage.
How long does it take to get approved for a mortgage?
It takes 11 to 30 days to get approved for a mortgage. Thus, it is necessary to start a mortgage application process as soon as you decide to buy a house.
You can get a mortgage pre-approval even before you find a property you wish to buy so you can be sure to have the financing you need. If you don’t push through with a home purchase, you lose nothing from a pre-approval and you have nothing to pay. It will allow you to lock in your mortgage rate if you finalize your home purchase.
What is mortgage loan insurance?
Mortgage default insurance is mandatory under the law if you borrow more than 80% of the purchase price. This means you paid a down payment of less than 20%.
This type of insurance protects the lender from a possible default in payments by the borrower. It is offered only by 3 companies – The Canada Guaranty, the Canada Housing & Mortgage Corp. (CMHC), and Gemworth Financial.
Compare mortgage options with top mortgage brokers
Getting a mortgage to buy a house in Canada is a serious undertaking. It is a long-term financial obligation that will impact your finances now and in the future.
It is important to get the best mortgage product and rate so you can save money on your mortgage!
Mortgage brokers are the best professionals to help with your mortgage options. They work with multiple lenders to give you the freedom to choose your lender and get the most favorable terms for your mortgage.
As a mortgage expert, a mortgage broker can explain what you need to know so you can make the right decisions. He will help you from start to finish with a mortgage pre-approval, mortgage modification, or refinancing.
Make sure to find the best mortgage broker in your area using our short online form!
Connect with top brokers, free of charge, to apply for a mortgage!