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Down-Payment Information


Down-Payment Requirements


The greater the down-payment on the price of the home, the less interest cost you will pay over time. In short, more money upfront means  substantial savings.  A conventional mortgage requires 20% of the purchase price or appraised value, whichever is less. However, if you are unable to allocate 20% as down-payment, a high ratio mortgage requires as little as 5%. High ratio mortgages do require you purchase default insurance  through the lender with a one-time premium . This additional cost can be added to the mortgage itself.


Gifted Funds


If you have received a financial gift from an immediate family member to form as all or part of the down-payment for the purchase of a home, most lenders will accept it. However, you will require a letter signed by the donor confirming the money is not in fact a loan. In other words, the letter must state that your family member does not wish to be financially reimbursed. The funds should be deposited into your bank account prior to completion and a  Bank statement showing the deposit in your account.


RRSP Withdrawals


Asa first time buyer you can use your RRSP through the Home Buyer’s Plan. You may withdraw up to $25 000 per person on the mortgage  in order to purchase, or construct, a home for yourself or a disabled relative. The funds must be repaid annually and in full within 15 years of withdrawal. If you fail to make an annual payment, that amount will be considered as taxable income. Note that any contributions must remain in the RRSP for a minimum of 90 days prior to withdrawal.


Borrowed Funds


The down-payments for the purchase of your home may also be borrowed. Payments will be calculated into your debt service ratio, the percentage of gross annual income required to meet all outstanding debt in addition to your new home. Most likely, this will reduce the size of loan you are eligible for. Check with your lender for more information on financing the down-payment.

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