Updated: April 2025  |  bremo.io financial guides

Buying with 5% Down in Canada — Full Guide

A 5% down payment is the minimum required to purchase a home in Canada (for homes under $500,000). It's an option that makes homeownership accessible earlier, but it comes with real trade-offs you should understand before committing.

What 5% Down Actually Gets You

With 5% down on a $500,000 home, you're contributing $25,000 and borrowing $475,000. The 95% loan-to-value ratio puts you firmly in CMHC-insured territory, which adds a 4% premium ($19,000) to your mortgage. Your actual mortgage balance becomes $494,000, and you're starting with very little equity.

The Full Cost of 5% Down

Note: PST on the CMHC premium must be paid upfront at closing. It cannot be added to the mortgage.

Amortization Limits with 5% Down

Insured mortgages (including 5% down purchases) have been subject to a maximum 25-year amortization for most buyers. As of August 2024, first-time homebuyers purchasing new construction can access 30-year amortization on insured mortgages. This longer amortization reduces monthly payments but significantly increases total interest paid.

Qualifying Requirements for 5% Down

• Minimum credit score: typically 680 (some insurers accept 600 with conditions)
• Must pass the mortgage stress test (qualify at contract rate + 2% or 5.25%, whichever is higher)
• GDS ratio must not exceed 39%, TDS ratio must not exceed 44%
• Must be purchasing your principal residence (not a rental property)
• Property must be priced under $1,500,000

Pros of Buying with 5% Down

• Enter the market sooner: You don't need to save for years to reach 20%
• Capture potential appreciation: In rising markets, earlier entry means more gain
• Stop paying rent: Every mortgage payment builds equity (even slowly at first)
• Access first-time buyer programs: FHSA, Home Buyers' Plan, first-time buyer land transfer tax rebates

Cons of Buying with 5% Down

• CMHC premium: Up to 4% of the mortgage amount added to your balance
• Higher monthly payments: Larger mortgage means larger payments
• Limited equity cushion: If prices fall even modestly, you could owe more than your home is worth
• 25-year amortization limit: Reduces payment flexibility unless you qualify for 30-year new construction
• Higher total interest: More borrowed money over more time means more interest

Is 5% Down Right for You?

Consider 5% down if:

• You have stable income and your budget can comfortably handle the payments
• You're buying in a market where rents are comparable to ownership costs
• You've been renting and the opportunity cost of waiting is significant
• You have an emergency fund separate from your down payment

Consider waiting and saving more if:

• Your budget is tight and any rate increase at renewal would cause financial stress
• You have significant other debts eating into your cash flow
• You don't have money set aside for closing costs and immediate repairs

Don't Forget Closing Costs

Down payment is only part of the upfront cost. Budget an additional 1.5-4% of the purchase price for closing costs: land transfer tax, legal fees, home inspection, title insurance, and adjustments. In Ontario, first-time buyers receive a land transfer tax rebate up to $4,000, which helps.