[TL/DR] Putting 20% down avoids mortgage default insurance and lowers your monthly payment, but it shouldn't come at the cost of your household's financial resilience. For first-generation wealth builders, retaining an accessible cash reserve matters just as much as minimizing borrowing costs. The goal isn't to minimize your mortgage at all costs,it's to maintain the liquidity you need to absorb life's unexpected disruptions.
From “Don’t Buy at Your Ceiling” to “How Much Should I Put Down?”
In September I wrote about why a mortgage pre-approval is a ceiling, not a target. A lender can tell you what you qualify to borrow. It can’t tell you what your household can comfortably afford.
Your down payment is the other half of that equation.
Minimum down payment or 20%?
The conversation usually splits into two camps. Each side is doing real math, and both are protecting against different risks.
Camp 1: Put Down the Minimum and Get In
The argument: Prices and rates don't wait for you. Saving for years to reach a bigger number can mean chasing a moving target. Meanwhile, the cash you keep after closing remains available for emergencies, registered accounts, and everything else competing for your dollars.
What it gets right: Timing and liquidity. On a $750,000 home, the minimum down payment is $50,000. That leaves more of your capital available for other priorities.
What it costs: A larger mortgage, a higher monthly payment, and a mortgage insurance premium. You also start with less equity in the property. And the liquidity advantage only holds if you actually retain the cash and can comfortably manage the larger payment.
Camp 2: Wait Until You Have 20% Down
The argument: No mortgage insurance premium, a smaller mortgage, and a lower monthly payment. You also borrow less and generally pay less interest when comparing otherwise identical mortgage terms.
What it gets right: Borrowing costs and payment flexibility. On the same home, a $150,000 down payment avoids the standard mortgage insurance premium and meaningfully reduces the mortgage balance.
What it costs: An additional $100,000 upfront compared to the minimum down payment. This can mean years of delay or drawing down accounts that would otherwise support your financial security.
At the same interest rate, putting 20% down generally reduces total borrowing costs. Keep in mind, actual mortgage rates can differ between insured and uninsured loans, so the premium alone doesn't settle the comparison.
The practical question is what remains after closing.
Camp 1 is focused on getting into the market. Camp 2 wants to minimize monthly cashflow obligations. Neither is automatically right for every household.
What Mortgage Insurance Actually Costs You
Mortgage default insurance is generally required when your down payment is less than 20%.
It protects the lender, not you or your family, and doesn’t replace life, disability, or critical illness insurance.
Under CMHC’s standard schedule for owner-occupied homes, the premium depends on your loan-to-value ratio:
4.00% when the ratio is above 90% and up to 95%.
3.10% when it’s above 85% and up to 90%.
2.80% when it’s above 80% and up to 85%.
Try the CMHC mortgage insurance calculator to see your own scenario.
You can add the premium to your mortgage or pay it upfront. If you finance it, you pay interest on it. Some provinces also charge sales tax on the premium, which must be paid separately.
The minimum down payment is:
5% on the first $500,000.
10% on the portion above $500,000, up to $1.5 million.
20% for homes priced at $1.5 million or more.
See the Financial Consumer Agency of Canada’s minimum down payment requirements for current rules.
What The Extra Down Payment Buys
Mortgage insurance premiums fall in tiers, so the cost of moving from one down payment level to the next varies substantially. But insurance is only part of the cost; a bigger down payment also lowers your ongoing monthly payment.
Consider a $750,000 purchase:
| Down Payment | Capital Deployed | Total Mortgage (incl. premium) |
Approx. Monthly Payment | Total Premium | Premium Saved |
|---|---|---|---|---|---|
| Minimum (6.67%) | $50,000 | $728,000 | ~$4,234 | $28,000 | n/a |
| 10% | $75,000 | $695,925 | ~$4,048 | $20,925 | $7,075 |
| 15% | $112,500 | $655,350 | ~$3,812 | $17,850 | $3,075 |
| 20% | $150,000 | $600,000 | ~$3,490 | $0 | $17,850 |
Illustrative estimates use a 5% interest rate and 25-year amortization, with mortgage insurance premiums financed into the mortgage. Payments assume Canadian mortgage compounding conventions and exclude property taxes, utilities, and other housing costs. The premium rates are based on the standard CMHC owner-occupied schedule. Actual rates, eligibility, and mortgage payments depend on lender and insurer terms.
What matters is how much extra cash each step requires:
Moving from 10% to 15% down: requires another $37,500. Your payment drops about $236 a month, and insurance falls by $3,075.
Moving from 15% to 20% down: requires the same $37,500. Your payment drops about $322 a month, and insurance falls by $17,850.
But if reaching 20% means emptying your investment accounts and emergency fund, you’re trading liquidity for a lower monthly payment and no insurance. That’s a much bigger decision.
The First-Gen Problem: “All Your Eggs in One Basket”
Using every available dollar to reach 20% can feel like the responsible choice. It lowers your mortgage balance, avoids mortgage default insurance, and reduces your monthly payment.
But what happens to the rest of your financial life once you get the keys?
Before closing, your wealth might be spread across cash, a TFSA, an FHSA, and an RRSP. After closing, much of it may be tied up in one property. Your net worth might look strong on paper, but your access to cash can tell a different story.
For first-generation wealth builders, that distinction matters.
There’s no guaranteed backstop. Many of us can’t rely on family to cover an unexpected expense. Sometimes the responsibility runs the other way.
You can’t spend a house. You can’t sell a bedroom to cover a repair. Accessing equity generally means selling or borrowing, and borrowing depends on your income, credit, and lender approval at the time. That can get harder during a job loss or illness, precisely when you need cash most.
Your security may rest on a few things. One income stream. One mortgage. One property. As I’ve written before, first-generation wealth often rests on our ability to keep earning. If a major expense or income disruption hits after your cash is gone, you may have to take on high-interest debt or, in a severe case, sell the home.
None of this means 20% is the wrong decision. If you can reach it while keeping an adequate emergency reserve and your other priorities on track, it can be a sensible choice.
The issue is treating a lower payment as the ultimate priority, regardless of what it leaves you with afterward.
Two Households, Same Home
Both are buying a $750,000 property with $175,000 across cash, a TFSA, an FHSA, and an RRSP. Both spend about $9,000 a month on essentials.
Scenario A: Put 20% Down
$150,000 down plus $15,000 in closing, legal, and moving costs leaves $10,000 accessible. They avoid mortgage default insurance and have a lower monthly payment, but less cash.
Then life happens:
Month 2: An unexpected $5,000 home repair, such as HVAC or plumbing.
Month 5: One income is disrupted for four months.
After the repair, $5,000 remains. The lower payment helps, but a prolonged disruption could force them to draw on other assets, cut spending, or borrow to cover essentials. They’ve reduced their borrowing costs, but they have less flexibility to absorb a shock.
Scenario B: Put 10% Down
$75,000 down plus $15,000 in costs leaves $85,000 accessible. They carry a higher monthly mortgage payment, but keep more capital outside the property.
The same events unfold:
Month 2: The repair is paid from available cash.
Month 5: Their emergency reserve covers essentials during the income disruption, reducing their reliance on high-interest borrowing.
After the repair, $80,000 remains. Their essential expenses are somewhat higher, but the reserve buys time to adjust spending and avoid high-interest debt. It doesn’t guarantee a strain-free stretch, but it gives them more options.
What Are You Trading Away?
Neither household is immune to financial stress. Putting 20% down brings a lower payment, no mortgage insurance, and lower borrowing costs. Putting 10% down costs more to borrow but keeps substantially more accessible capital.
The right choice depends on more than the mortgage rate, mortgage insurance or a rule of thumb. It depends on how much liquidity you need, how stable your income is, and what other responsibilities you carry.
Stable income, strong reserves, few competing demands: 20% down may make sense.
Variable income, family obligations, or limited backstop: More liquidity may be worth the extra borrowing cost.
The question isn’t simply how much you can put down. It’s how much you can put down while remaining financially resilient after closing.
A Middle Ground: Preserve Flexibility
Putting less than 20% down doesn’t mean carrying the same mortgage balance for 25 years.
Many Canadian mortgages include prepayment privileges that allow you to pay down principal faster as your cash flow grows:
Annual Lump Sums: Most closed mortgages allow you to make penalty-free lump-sum payments—typically between 10% and 20% of your original mortgage principal each calendar year.
Payment Increases / Double-Up Payments: Many lenders let you increase your regular monthly installment (or double up individual payments) directly against the principal balance.
Renewal Windows: When your mortgage term matures (e.g., at the end of a 3-year or 5-year term), you can pay down as much of the balance as you want with zero penalty before renewing.
However, flexibility works both ways. Money sent into your mortgage becomes home equity and cannot be quickly withdrawn if an emergency occurs or an opportunity arises.
Build the reserve first. Once your liquidity foundation is solid, you can use your mortgage's prepayment privileges to pay down debt on your own timeline.
Building Your Strategy
There are good reasons to put 20% down. You may be close to the threshold, have ample cash reserves, or value the lower monthly mortgage payment. Eliminating mortgage default insurance can also reduce your overall borrowing costs.
There are equally valid reasons to put down less. Reaching 20% might mean draining your emergency fund, liquidating investments, or leaving too little room for other financial priorities.
Before you decide, ask yourself three questions:
What is the opportunity cost of the extra down payment?
The money used to reach 20% down can't also fund your emergency reserve, registered accounts, or business. Consider your income stability, family responsibilities, and access to other funds.Investing the difference won't necessarily earn a better return, but liquidity has value.
How much does the next down payment threshold actually save you?
Mortgage insurance premiums vary by down-payment. Moving from 15% to 20% eliminates the premium, but requires substantial additional capital. Weigh the savings and lower borrowing costs against the liquidity you give up.Can your household comfortably carry the mortgage and fund its other priorities?
A lower payment improves cash flow, but not if reaching 20% leaves you unable to replenish savings, invest consistently, or manage an income disruption.If you can put 20% down while maintaining adequate reserves and meeting your other financial goals, avoiding mortgage insurance may be entirely reasonable.
The goal isn't to minimize your mortgage at all costs. It's to choose a structure that works for your household as a whole.
Buying a home is a major milestone. The down payment should help establish your financial foundation, not compromise the flexibility you need to maintain it.
Frequently Asked Questions (FAQ)
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No. The premium is a one-time charge based on your original loan amount, and paying down your mortgage later doesn’t cancel it or generate a refund. Prepayments can reduce the interest you pay on it, since the premium sits inside your mortgage balance.
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Not automatically. If you keep paying the same amount after a lump sum, you’ll pay off the mortgage sooner, but your payment stays the same until your lender recalculates it, usually at renewal. In the 10% down example above, prepaying $15,000 a year for five years brings the recalculated payment to about $3,502. Most lenders cap annual lump sums, so check your mortgage contract.
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No. It protects the lender if you default. Protecting your family and income requires separate coverage, like term life, disability, and critical illness insurance.
Disclaimer: Tax laws, mortgage rules, and insurance guidelines in Canada are highly specialized and subject to change. The strategies outlined in this article are for educational and planning purposes, and the numbers above are illustrative. To build a custom plan that fits your family, consult with your financial planner, mortgage professional, and tax/legal team.
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