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Saving for Your Down Payment
A down payment is the money you put forward toward the price of a home – and is often the most challenging part of buying a home.
To help you get into your first home faster, there are a number of options available that can help, including:
Learn more about:
How Much You Need to Save
You could become a homeowner for as little as 5% of the purchase price. Depending on the amount, your mortgage will be classified as either conventional or high ratio.
If your down payment is less than 20%, you may get a high-ratio mortgage that must be insured against default. That means you'll pay a one-time insurance premium to protect the lender in the event that you become unable to make payments.
While your down payment can be as low as 5%, keep in mind that the larger the down payment you make, the less your home will cost over the long term. It makes sense, then, to put down as much as you can afford to.
The following chart clearly shows how much you can save over the life of your mortgage by making a larger down payment. Here are the circumstances:
- House price: $150,000
- Mortgage rate: 8.00%
- Principal and interest payment: 7.63213 per $1,000
- Amortization: 25 years
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Scenario I |
Scenario II |
| House price |
$150,000 |
$150,000 |
| Down payment |
$15,000 |
$25,000 |
| Total mortgage |
$135,000 |
$125,000 |
| Monthly mortgage payment (principal and interest) |
$1030.34 |
$954.02 |
| Total payments over 25 years |
$309,102 |
$286,206 |
In this example, an additional $10,000 put towards the down payment actually lowers the total cost of the mortgage by $22,896 over the 25-year period.
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How to Save for a Down Payment
As a rule, the longer you have to save, the more options you'll have.
If you want to purchase your home in the next couple of years, you'll probably want to invest money in shorter-term vehicles that preserve your capital and are less likely to fluctuate in value.
If you think it will be 5 or 10 years before you're ready to buy, invest in longer-term vehicles that offer the potential for growth.
You may want to consider:
If you are not sure of your time horizon or risk tolerance, complete the BMO Investor Profiler. This tool will determine how comfortable you are with risk and your time horizon for investing. It can also help you figure out what types of investments are right for you.
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How to Reach Your Savings Goal Faster
The following ways can help you save money faster for the down payment on your home.
- Use a Continuous Savings Plan (CSP) to put aside the
same manageable amount of money each month. Contributions to a registered
savings plan are tax-deductible and can help reduce the amount of income tax
you pay in a year.
- Use the money in your RRSPs to take advantage of Canada Customs and Revenue Agency Home Buyers' Plan. As a first-time homebuyer, you may be able to withdraw up to $20,000 tax-free from your RRSP to add
to your down payment or to cover other purchase-related costs. Your spouse or
partner can do the same, for a combined total of $40,000.
- If you are unable to save for a down payment you could consider a BMO Zero Down Mortgage. We pay the minimum 5% down payment required, plus provide you with access to discounts and rewards that can help you settle into your new home faster.
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How to Make a Homebuyers' Plan Withdrawal
Your withdrawal can only be made after you provide proof of an accepted offer. You must submit a completed Form T1036 Home Buyers' Plan (HBP) Request to Withdraw Funds from an RRSP to your RRSP issuer, who will finish the process. A BMO Bank of Montreal representative can provide you with more information about this.
For more information, visit the Canada Customs and Revenue Agency site.
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Paying Back a Homebuyers' Plan Withdrawal
The money you withdraw from your RRSP under the Home Buyers Program is considered a loan. The money must be repaid at a prescribed rate into your RRSP within 15 years, but you don't have to begin repayments into your RRSP for about three years.
It's a good idea to begin paying back this money as soon as you can, so you may wish to consider opening a Continuous Savings Plan. It's a simple and convenient way to manage your savings on an ongoing basis.
For more information, visit the Canada Customs and Revenue Agency site.
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