How to choose your first mortgage in Canada
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View current ratesTo buy your first home in Canada you need a minimum down payment of 5% (on properties up to $500,000), pass the OSFI mortgage stress test, and prove that your housing costs don't exceed 39% of your gross income. In addition to the down payment, set aside 1.5% to 4% of the purchase price for closing costs like transfer taxes, lawyer fees, and inspection.
Key takeaways
- Minimum down payment: 5% on the first $500,000 and 10% on the amount above
- The stress test qualifies you at a higher rate than your actual rate. Reduces your max ~20%
- Since December 2024: insured mortgages up to $1.5M and 30-year amortization for first-time buyers
- You can combine FHSA + RRSP (HBP up to $60,000) for your down payment
- Set aside an additional 1.5%–4% of the purchase price for closing costs
- Pre-approval is valid for 90–120 days and does NOT guarantee final approval
Before choosing: how much you can afford (without breaking your budget)
Before looking at houses, you need to know how much you can actually afford. Banks in Canada use two key indicators to determine this:
GDS: Gross Debt Service Ratio
Your housing costs (mortgage + property tax + heating + condo fees if applicable) should not exceed 39% of your gross monthly income. This is the limit banks consider safe so you can pay for your home without compromising your finances.
TDS: Total Debt Service Ratio
All your combined debt payments (housing + car + credit cards + student loans + lines of credit) should not exceed 44% of your gross monthly income.
Practical example
Gross annual income: $70,000 ($5,833/month)
Maximum GDS (39%): $5,833 x 0.39 = $2,275/month for housing costs
This includes: mortgage payment + property tax (~$300/mo) + heating (~$150/mo)
Maximum approximate mortgage payment: $2,275 - $450 = ~$1,825/month
The stress test explained (and how it changes your maximum)
The stress test is an OSFI (Office of the Superintendent of Financial Institutions) regulation that requires banks to qualify you at an interest rate higher than the one you'll actually pay. The goal is to ensure you can keep paying your mortgage if rates rise in the future.
How does it work?
The qualifying rate is the greater of:
- Your contract rate + 2%, or
- The minimum floor of 5.25% (in effect since January 29, 2026)
This means that if your actual rate is 4.5%, the bank qualifies you as if it were 6.5% (4.5% + 2%). The practical effect is that your maximum mortgage is reduced by approximately 20% compared to what you could pay at the actual rate. Use our mortgage calculator to estimate your real monthly payment with different rates and terms.
Important
The stress test is not optional. It applies to ALL buyers, even if you have a 20% or larger down payment. It doesn't matter if you go to a big bank, a credit union, or a regulated private lender: everyone must apply it.
Down payment: minimum, accepted sources, and common mistakes
The down payment is the amount you pay out of pocket when purchasing the property. In Canada, the minimum depends on the home price:
- 5% on the first $500,000 of the purchase price
- 10% on the portion between $500,001 and $1,499,999
- 20% mandatory for properties of $1,500,000 or more
Update (effective December 15, 2024): The limit for insured mortgages increased to $1.5 million (previously $1M). Additionally, first-time buyers and new construction buyers can now access 30 years of amortization (previously the maximum was 25 years for insured mortgages).
Accepted sources for the down payment
- Personal savings: bank accounts with at least 90 days of history
- RRSP: Home Buyers' Plan (HBP). Withdraw up to $60,000 tax-free for your first home (must repay within 15 years)
- FHSA (First Home Savings Account): tax-free withdrawal with no repayment obligation. Learn how each account works in our TFSA vs RRSP vs FHSA guide for newcomers
- Gift from a direct family member: parents, siblings, or grandparents, with a signed gift letter confirming it's not a loan
| Home price | Minimum down payment | Insurance required |
|---|---|---|
| $400,000 | $20,000 (5%) | Yes |
| $600,000 | $35,000 (5% + 10%) | Yes |
| $800,000 | $55,000 | Yes |
| $1,500,000+ | $300,000 (20%) | No |
CMHC/default insurance: what it is, how much it costs, and when it applies
If your down payment is less than 20% of the purchase price, you're required to get mortgage default insurance, also known as CMHC insurance. This insurance is offered by three entities: CMHC, Sagen, or Canada Guaranty.
Important distinction
This insurance protects the lender (bank), NOT you. If you stop paying the mortgage, the insurance reimburses the bank. You remain responsible for the debt. Although it protects the bank, you pay the premium.
The premium ranges from 0.6% to 4.5% of the mortgage amount, depending on your down payment percentage. The good news: you can add the premium to your mortgage amount, so you pay it gradually instead of all at once.
| Down payment % | Approximate premium % |
|---|---|
| 5% | 4.00% |
| 10% | 3.10% |
| 15% | 2.80% |
Concrete example
$500,000 home with 5% down payment ($25,000):
Mortgage amount: $475,000
CMHC premium (4.00%): $475,000 x 0.04 = $19,000
Total mortgage with insurance: $475,000 + $19,000 = $494,000
Choosing your structure: term, amortization, fixed vs variable
Term
The term is the period during which your mortgage conditions (interest rate, payment type) remain fixed. In Canada it typically ranges from 1 to 5 years. The 5-year fixed-rate term is the most popular. When the term ends, you must renew your mortgage. At that point you can switch banks, renegotiate the rate, or modify conditions.
Amortization
Amortization is the total time to pay off the full mortgage. The standard in Canada is 25 years. Since December 2024, first-time buyers and new construction buyers can access 30 years of amortization on insured mortgages. Longer amortization means lower monthly payments, but you pay more total interest over the life of the loan.
Fixed rate vs variable rate
This is one of the most important decisions when choosing your mortgage. Here are the key differences:
| Aspect | Fixed rate | Variable rate |
|---|---|---|
| Interest rate | Stays the same throughout the term | Fluctuates with the Bank of Canada rate |
| Monthly payment | Always the same, easy to budget | Can go up or down each month |
| Risk | Low, no surprises | Higher. Depends on Bank of Canada decisions |
| Initial rate | Generally higher | Generally lower at the start |
| Ideal for | Those who value stability and are new to Canada | Those who can tolerate fluctuations and expect rates to drop |
Pre-approval: documents and checklist for newcomers
Mortgage pre-approval is the first formal step before house hunting. The bank reviews your finances and tells you how much they can lend you and at what approximate rate. It's normally valid for 90 to 120 days. A good credit history is key to getting better rates, so if you're just starting out, check our guide on how to build credit in Canada from scratch.
Remember: pre-approval is NOT a final approval. Conditions can change if your financial situation changes, if the property doesn't meet the bank's requirements, or if the property appraisal is lower than the purchase price.
Required documents (checklist for newcomers)
- Identification: passport + permanent residence card (PR card) or work permit
- Proof of income: employment letter, 2 recent pay stubs, and Notice of Assessment (NOA) from the CRA
- Proof of down payment: bank statements from the last 90 days showing the source of funds
- List of debts and monthly obligations: car loan, credit cards, lines of credit, student loans
- Purchase agreement: once you find the property (Purchase and Sale Agreement)
Tip for newcomers
If you've been in Canada for less than 2 years, some banks have special newcomer programs that don't require a long Canadian credit history. RBC, Scotiabank, TD, and BMO offer dedicated programs. A mortgage broker can guide you to the bank that best fits your immigration and employment situation.
Closing costs: how much to set aside (besides the down payment)
Many first-time buyers focus only on the down payment and forget about closing costs. These additional expenses are mandatory and can add up to a significant amount. Plan to set aside between 1.5% and 4% of the purchase price to cover them. To budget correctly, it's helpful to know the real cost of living in your city and how much room you'll have after paying the mortgage.
- Land Transfer Tax: varies by province, typically 0.5% to 2%+ of the purchase price. In Ontario and Toronto there's a double tax (provincial + municipal). Some provinces offer first-time buyer exemptions.
- Legal fees (lawyer or notary): $1,500–$2,500. The lawyer reviews documents, registers the mortgage, and transfers the title to your name.
- Home inspection: $300–$500. Highly recommended to detect structural, electrical, or plumbing issues before buying.
- Title insurance: $200–$400. Protects against legal issues with the property title (fraud, errors in previous records).
- Moving costs: $1,000–$3,000 depending on distance and amount of belongings.
- Property tax and services adjustment: proportional reimbursement to the seller for prepaid property taxes or services.
Closing costs example
For a $500,000 home in Ontario:
Land Transfer Tax: ~$6,475 (with first-time buyer rebate: ~$2,475)
Lawyer: ~$2,000
Inspection: ~$400
Title insurance: ~$300
Moving: ~$2,000
Approximate total: $7,175–$11,175
Rule of thumb: set aside between $7,500 and $20,000 extra beyond the down payment for a $500,000 home.
Preguntas frecuentes
Can I buy a home as a temporary resident?
Yes, but you typically need a minimum 20% down payment because CMHC insurance is not available for non-permanent residents. Conditions vary by lender. Some banks have special programs for workers with work permits.
Do I need an agent or can I go directly to the bank?
You can go directly to the bank, but a mortgage broker can compare rates from multiple lenders at no cost to you. The broker receives their commission from the lender, not from you. For newcomers, a broker usually finds better options because they know which banks accept short credit histories.
What if my income is from another country?
Most Canadian lenders require verifiable Canadian income. Some banks may consider foreign income with additional documentation (translated employment letters, bank statements), but they'll generally ask for a higher down payment (35% or more).
When is variable better than fixed?
Fixed rate if you value stability and it's your first mortgage. You know exactly how much you'll pay each month. Variable rate if Bank of Canada rates are high and expected to drop, and you can tolerate monthly payment fluctuations. For most newcomers, the 5-year fixed rate is the safest option.
Can I use my FHSA and RRSP together for the down payment?
Yes. You can combine FHSA (First Home Savings Account) withdrawals with the RRSP Home Buyers' Plan (up to $60,000) for your down payment. The FHSA doesn't require repayment, but the RRSP withdrawal under the HBP must be repaid within 15 years.
Calculate your mortgage now
Use our mortgage calculator to estimate your monthly payment, total loan cost, and how much down payment you need.
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