Since the Bank of Canada announced it was lowering the overnight lending rate by 25 basis points in June, some fixed rates have finally started to come down. According to Ratehub, the average 5-year fixed rate dropped to 4.64% in July – the lowest point in over a year. Despite this, interest rates remain higher than historical averages, and it may take a few more Bank of Canada rate drops before borrowing costs lower more substantially.
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So what can prospective homebuyers do to lower their monthly housing costs? If you have the means and are willing to save for a little bit longer, putting down a larger down payment can significantly lower your monthly mortgage payment.
To understand how different down payment amounts can affect your monthly mortgage payment, Zoocasa analyzed the average monthly mortgage payment for the average-priced home in 18 cities. For homes priced under $1 million, we calculated the payments based on the minimum down payment, as well as 10%, 15%, and 20% down payments. For cities with average home prices exceeding $1 million, we calculated the monthly mortgage payments using the minimum down payment, along with 25%, 30%, and 35% down payments.
Average home prices were sourced from the latest report from the Canadian Real Estate Association and monthly mortgage payments were calculated using the realtor.ca mortgage affordability calculator, assuming a 25-year amortization and a 5-year fixed rate of 4.64%.
Putting a Little Extra Down Can Save You Hundreds In the Long-Term
Among the 15 cities with average home prices below $1 million, homeowners in Hamilton-Burlington experience the largest difference between the monthly mortgage payment with the minimum down payment and the monthly mortgage payment with a 20% down payment.
With an average home price of $916,434, the minimum down payment of $66,643 results in a monthly mortgage payment of $4,961. However, if a Hamilton-Burlington homebuyer can put down a 20% down payment of $183,287, the monthly mortgage payment drops by more than $800 to $4,115.
While putting down an extra $100,000 for the down payment may not be feasible for every homebuyer, you can still save money every month by increasing the down payment by $25,000. With a 10% down payment of $91,643, the monthly mortgage payment decreases by nearly $200 to $4,773. That comes out to annual savings of more than $2,200 compared to making the minimum down payment.
Similarly, in Kitchener-Waterloo, Niagara Region, and Ottawa, putting a 10% down payment instead of the minimum down payment can lower your monthly mortgage payment by over $175 per month. Increasing the down payment to 15% will further reduce your monthly mortgage payment in these cities by over $380 per month.
Down Payments in Canada’s Most Expensive Cities
In the most expensive city in Canada for homeownership, Vancouver, the average monthly mortgage payment exceeds $6,000 (assuming the homeowner puts down the minimum down payment of 20%). That’s a huge bill to pay every month and adds up to $72,000 at the end of the year.
You can reduce your monthly mortgage bill by over $1,000 and your yearly expenses by nearly $13,000 by putting down a 35% down payment on a Vancouver home. That may sound like an astronomical number, but consider that by putting down a larger down payment, you can guarantee that your monthly mortgage payment is significantly lower, making homeownership more manageable in the long run. A larger down payment also means paying less interest over the life of the loan, ultimately saving you money and increasing your financial stability.
Toronto homebuyers can also save nearly $1,000 a month by increasing their down payment. For an average-priced home, buyers will need to put $233,158 down for the minimum down payment, which brings the monthly mortgage payment to $5,235. However, if a homebuyer in Toronto can afford to put down a 35% down payment of $408,026, the monthly mortgage payment will lower to $4,253, amounting to $11,784 in annual savings.