Down payment, mortgage insurance and the stress test
Three rules decide how much home you can buy: the minimum down payment, mortgage default insurance if you put down less than 20%, and the stress test.
By Mehran Salehian, Sales Representative · Reviewed October 2026
Minimum down payment
- 5% of the first $500,000 of the price
- 10% of the part between $500,000 and $1.5 million
- 20% of the whole price at $1.5 million or more
| Price | Minimum down | Share of price |
|---|---|---|
| $500,000 | $25,000 | 5% |
| $750,000 | $50,000 | 6.7% |
| $1,000,000 | $75,000 | 7.5% |
| $1,250,000 | $100,000 | 8% |
| $1,499,999 | $125,000 | 8.3% |
| $1,500,000 | $300,000 | 20% |
Mortgage default insurance (CMHC)
With less than 20% down, the mortgage must be insured. The premium is a percentage of the loan, added to your mortgage:
| Down payment | Premium |
|---|---|
| 5% to 9.99% | 4.00% |
| 10% to 14.99% | 3.10% |
| 15% to 19.99% | 2.80% |
| 20% or more | none |
Choosing a 30-year amortization (available to first-time buyers and on new builds) adds 0.20%. In Ontario, 8% sales tax applies to the premium and must be paid in cash on closing.
The stress test
Lenders must check that you could still afford the payments at the higher of 5.25% or your actual rate plus 2%. Two ratios are used:
- Housing costs (mortgage, property tax, heating, half the condo fees): no more than about 39% of gross income.
- All debts (the above plus car loans, credit cards, lines of credit): no more than about 44%.
Paying off a car loan or a credit card balance before you apply can raise what you qualify for more than a raise would.
Work out your payment and what you qualify for
Fixed or variable?
Fixed rates stay the same for the term, usually 5 years; variable rates move with the Bank of Canada's rate. Breaking a fixed mortgage early can be expensive, so if you may sell or move within a few years, ask about the penalty before choosing.
A worked example, start to finish
A first-time buyer is looking at a $900,000 home in Toronto with the minimum down payment and a 30-year amortization. The rate below is an example only, not a quote.
- Minimum down payment. That's 5% of the first $500,000 ($25,000) plus 10% of the next $400,000 ($40,000), so $65,000, or about 7.2% of the price.
- Loan before insurance. $900,000 − $65,000 = $835,000. That's about 92.8% of the price, so CMHC's premium is 4.00%, plus 0.20% for an amortization over 25 years, for 4.20% in total (CMHC).
- Premium. 4.20% × $835,000 = $35,070, added to the mortgage. The mortgage becomes $870,070.
- Sales tax on the premium. Ontario's 8% retail sales tax on insurance premiums (Ontario Ministry of Finance) is about $2,806. It is paid in cash on closing, because CMHC says it can't be added to the loan.
- The actual payment. At a 4.2% fixed rate over 30 years, the monthly payment is about $4,236.
- The stress-test payment. The lender checks affordability at the higher of 5.25% or your rate plus 2%. Here that's 6.2%, which makes the qualifying payment about $5,285 a month.
- The income check. Add property tax and heating, say $500 a month, and the qualifying housing cost is about $5,785. To stay within a 39% housing-cost ratio, that needs roughly $178,000 a year in gross household income, before counting any other debts.
The takeaway: the stress test, not the down payment, is usually what limits a Toronto buyer. Paying down a car loan or credit card can matter more than saving a little more for the down payment.
How much more down makes a difference?
At the same $900,000 price:
- About 7.2% down ($65,000): 4.00% premium, plus 0.20% for a 30-year amortization
- 10% down ($90,000): 3.10% premium
- 15% down ($135,000): 2.80% premium
- 20% down ($180,000): no default insurance at all
Each step lowers the premium rate and the size of the loan. Going from 7.2% to 10% down here cuts the premium from about $35,000 to about $26,700 with a 30-year amortization. It also cuts the cash sales tax on it.
Common mistakes
- Budgeting on the pre-approval maximum. The qualifying amount is a ceiling, not a target. It doesn't include closing costs, moving or furniture.
- Assuming 30 years is always available. On an insured mortgage, 30-year amortizations are for first-time buyers and buyers of new builds (Finance Canada). For these rules, a first-time buyer is someone who has never bought a home, or who hasn't owned and lived in one, with a current spouse or partner, in the last four years. Someone coming out of a relationship breakdown can also qualify. A new build must never have been lived in (Finance Canada).
- Taking on new debt before closing. Lenders can re-check your credit before the funds are released. Hold off on financing a car or furniture until after you get the keys.
- Not documenting the down payment. Lenders ask where the money came from. Keep statements, and if a relative is giving you money, expect the lender to ask for a signed gift letter.
- Choosing a broker without checking. Mortgage agents and brokers in Ontario must be licensed. You can check on FSRA's public list.
Frequently asked questions
Can I buy a $1.6 million home with less than 20% down?
No. Insured mortgages are available only on homes under $1.5 million, so at $1.5 million and above you need at least 20% down.
Do I have to pass the stress test again when my mortgage renews?
If you move an uninsured mortgage to another federally regulated lender at renewal, without increasing the amount or the amortization, OSFI doesn't expect the new lender to apply the stress test (OSFI). Borrowing more or extending the amortization brings it back.
Does the stress test use my real rate?
It uses the higher of 5.25% or your contract rate plus 2 percentage points. When rates are low, the 5.25% floor sets the bar. When they're higher, the rate-plus-2% rule does. As of October 2026, OSFI's page still shows this formula, which it reviews at least once a year.
Does the source of my down payment change the cost?
It can. At 90.01% to 95% loan-to-value, CMHC charges a 4.50% premium instead of 4.00% when the down payment is "non-traditional". Ask your lender which sources it accepts, and how they're treated, before you rely on one.
Can a basement apartment's rent help me qualify?
Ask during pre-approval. Whether, and how much, rent from a legal second unit counts depends on the lender and the insurer, so bring a realistic rent estimate.
What's changed since late 2024
- December 15, 2024: The insured mortgage price cap rose from $1 million to $1.5 million. 30-year insured amortizations opened to all first-time buyers and all buyers of new builds (Finance Canada).
- January 15, 2025: Owners can refinance an insured mortgage up to 90% of the "as improved" value to add rental units, on properties under $2 million with up to four units (Finance Canada).
- 2025–2026: The stress test formula didn't change. The 5.25% floor and the 2% buffer still applied as of October 2026.
Run your own numbers in the mortgage calculator.
This guide is general information, not legal, tax or financial advice. Rules and rates change; confirm the details with your lawyer, lender or accountant.