The Down Payment

A down payment is the part of a home's price that the mortgage does not cover. The Financial Consumer Agency of Canada says it normally comes from your own funds: savings, the sale of a property, or a gift. Borrowed money is not ruled out everywhere. Some insured mortgage programs accept a disclosed borrowed down payment, count the new debt, and charge a higher premium for it. So the real work is three questions: how much you need, where the money waits while you save it, and where it comes from on closing day.

Each question has its own answer. The first is set by federal rules, your lender and your closing costs. The second is set by two plain requirements: the money has to be there on the date, and it cannot be worth less than when you set it aside. The third depends on what you already own and what your lender will accept. Taken in that order, with the Canadian source beside each rule, one large and anxious decision becomes three smaller ones.

What is a down payment, and does it have to be your own money?

It is the amount you put toward the purchase price from outside the mortgage being arranged. The expectation that it be your own money is a lender rule, and it comes with conditions that are worth knowing.

The federal guideline for lenders sets the tone. The Office of the Superintendent of Financial Institutions, in its Guideline B-20 on residential mortgage underwriting (2017), asks federally regulated lenders to "make rigorous efforts to determine if it is sourced from the borrower's own resources or savings". Where the down payment is a gift, it expects a letter from the giver confirming no recourse. Where it comes from what the guideline calls non-traditional sources, borrowed funds among them, it expects the lender to add risk mitigation. A credit union regulated by a province follows its own regulator, so ask yours what it applies.

The mortgage insurer's rules add detail. On its CMHC Purchase page, read on 30 September 2026, the Canada Mortgage and Housing Corporation (CMHC) lists traditional sources as savings, the sale of a property or a non-repayable financial gift from a relative. It also accepts non-traditional sources for homeowner loans on one or two units at 90.01% to 95% of the lending value, for borrowers with a strong credit history. Its examples are unsecured personal loans and unsecured lines of credit, and the money must be at arm's length and not tied to the purchase or sale of the property.

Put plainly: your own savings and a genuine gift are the clean sources. Borrowed money can be accepted in some programs; it is disclosed, it is counted, and it costs more. Whether a particular lender accepts a particular source is that lender's decision, and you want the answer in writing before you make an offer.

How much down payment does a home purchase in Canada require?

The minimum is a formula, not a guess. The Financial Consumer Agency of Canada (FCAC) publishes it on its page How much you need for a down payment (modified 15 October 2025, read 30 September 2026).

Below 20% down, the FCAC says you will typically need mortgage loan insurance. CMHC's Purchase page, read the same night, requires a purchase price below $1,500,000 for its homeowner loans. Rules like these change with federal announcements, so confirm the current figures with your lender on the day you apply.

The minimum is not the whole bill. The FCAC's Buying a home page (modified 20 October 2025) names closing costs such as home inspection fees, legal fees, property tax adjustments and title insurance, and tells buyers to be prepared to spend 1.5% to 4% of the purchase price on them. In Quebec, ask your notary for the fees and any transfer duties that apply to your purchase.

Illustrative example. Assume a purchase price of $700,000 and the minimum down payment. The minimum is 5% of the first $500,000 ($25,000) plus 10% of the remaining $200,000 ($20,000), or $45,000. Closing costs at the FCAC's range of 1.5% to 4% would add $10,500 to $28,000. Before any reserve, you would need $55,500 to $73,000 in cash at closing. Your own figures depend on your price, your lender and your province.

Then add the money you intend to keep. A household that closes with every dollar spent meets the moving bill, the repair found in the first month and the next emergency with a credit card. The reserve you plan to hold after closing belongs in the target from the start, not in whatever is left over.

What does the money have to do while you save it?

Two things, and the pair is unusually strict. It must be there on a date that someone else largely sets, and it must not be worth less than when you set it aside. A holding place that meets one test and not the other has not met the requirement.

Available on a date. A closing date is not flexible the way a retirement date is. A retirement plan can wait out a bad year; a purchase cannot. Money that takes weeks to release, or carries a penalty for early access, fails a test that a savings balance passes without effort.

Not worth less. Over a few years there is no time for a bad stretch to recover. A shortfall does not arrive as a smaller number on a statement. It arrives as a purchase that cannot close, at the moment you have the least time to fix it.

Waiting has a cost of its own. Money held for a purchase earns a deposit rate, is taxed on that interest outside a registered plan, and can lose ground to the price of the home it is meant to buy. That is opportunity cost applied to a holding period. Counting it does not loosen the two requirements. It turns the length of the saving period into something worth working on, by saving more each month or by aiming at a price that fits sooner.

Where can the money wait for a few years?

In deposits whose terms match your date. A high interest savings account keeps the balance available on demand, at a rate the institution can change. A guaranteed investment certificate (GIC) or a term deposit can pay more in exchange for a commitment, and it fits only if its terms let you reach the money before closing.

Read a GIC's terms before you buy it. The FCAC's guide to GICs and term deposits (modified 15 October 2025) explains that you get back the amount you invested at the end of the term, that some products can be cashed in before the end date and some cannot, and that the institution must tell you whether the rate is fixed or variable and what cashing in early would cost. A non-redeemable certificate that matures a month after your closing has turned a savings balance into a problem. A redeemable one gives access, and the institution must tell you how cashing in early affects the interest you earn. Check the maturity date, the early cashing terms and the rate before you commit.

Deposit protection is real, and it has limits. The Canada Deposit Insurance Corporation (CDIC, page modified 8 September 2026) insures eligible deposits at its member institutions, GICs and term deposits included, up to $100,000 per category, principal and interest together. An FHSA, a TFSA and an RRSP are each a separate category. Mutual funds, stocks, bonds and exchange traded funds are not covered, which matters because a "high interest savings" ETF is a fund, not a deposit. In Quebec, the Autorité des marchés financiers protects deposits at the institutions it authorizes, the Desjardins caisses among them, up to $100,000 per category of deposits, per person and per institution, including accrued interest. Ask your institution which plan covers you.

Tax is part of the rate. Outside a registered plan, the Canada Revenue Agency's guidance on line 12100 (modified 20 January 2026) says to report interest paid or credited to you on a savings account. For a GIC or term deposit held over several years, you report the interest earned in each complete investment year, even if it is paid only at maturity. Compare rates after tax, and remember that Quebec residents also file with Revenu Québec.

The firm behind this site is not registered with the Canadian Investment Regulatory Organization and does not give securities advice. Nothing in these descriptions recommends an institution or a product.

What do the FHSA, the Home Buyers' Plan and the TFSA each do for a first home?

Each is a registered plan with its own rules, and each can hold deposits. The Canada Revenue Agency (CRA) describes them this way, as read on 30 September 2026:

The CRA also says you can use the HBP and a qualifying FHSA withdrawal for the same qualifying home, as long as you meet all the conditions at the time of each withdrawal. When HBP repayments begin depends on the year of your first withdrawal, and the CRA's page on repaying the HBP sets out the dates. An FHSA also has a maximum participation period, after which it must be closed; check the date that applies to yours.

These plans do different jobs, and a participating life insurance policy does a different job again. Nothing here ranks them against one another or against a policy. Which plan to use, and in what order, turns on your income now and later, your room, your eligibility and what else the money must do. Take that decision to a professional licensed for registered plans, with your accountant, and confirm your room in your CRA account.

Should you start a whole life policy to save for a down payment?

No, not for a purchase a few years away. A specially designed, high-cash-value, participating whole life insurance policy is life insurance first. It is not a savings account, a deposit or an investment, and buying one to fund a near-term purchase puts the money in the wrong place.

The reason is the early years. A large part of the first premiums pays for the insurance and for issuing and distributing the contract, so the cash surrender value in those years can sit well below the premiums paid. How far below, and in which year it catches up, depends on the design, the funding pattern, the age and health of the person insured, and dividends, which are not guaranteed. The explanation of why early cash value is lower than premiums paid covers the mechanics, and how long until break-even explains why there is no single answer.

If you are shown a policy anyway, ask one question. What is the guaranteed cash surrender value in the year you expect to buy, next to the total premiums you will have paid by then? If the guaranteed figure is lower, the policy cannot do the job of holding a down payment, whatever the illustrated column shows. The questions in what to ask about an illustration before signing apply here too.

There is a second cost. A premium is a continuing obligation, and a household about to buy a home is about to take on a mortgage, property tax and repairs. A policy started now and abandoned after closing collects the early cost and reaches none of the later value.

You should know who is explaining this. Reading here is free. The firm behind this site, Canadian Wealth Creation Centre Inc., sells life insurance and is paid by the insurer, by commission, if a policy is bought through it. That is one more reason to test the argument yourself.

Where can the money come from on closing day?

From one of six routes, and each creates a different relationship. The table names who provides the money, who is owed afterwards, who receives any interest, and what is pledged.

Two points in that table carry the biggest risks. A family loan is not a gift, and calling it one on a gift letter misstates the file. And a family loan funded by the relative's own policy advance creates two debts: the relative owes the insurer, and you owe the relative.

How does a policy advance work if you already own a policy?

The owner asks the insurer, on the insurer's form, for an advance against the policy's value. The insurer lends its own money, and the policy's cash value secures it. There is no credit check by an outside lender, and the amount is limited by the contract's loan value less any loans already outstanding.

Here is what governs it, one clause at a time:

• The insurer sets the loan rate and may change it. Ask how it is set.
• Interest is owed to and paid to the insurer. Depending on the contract, it is billed each year or added to the loan if unpaid, and added interest then bears interest.
• Premiums stay due whatever happens to your income. If the contract pays an unpaid premium by an automatic advance, that advance adds to the loan.
• The death benefit paid on the death of the person insured is reduced by the loan and unpaid interest until they are repaid.
• If the loan and interest reach the value that secures them, the policy can end after the notice the contract provides.
• Someone else may have to consent. A lender holding an assignment of the policy, or an irrevocable beneficiary, can limit what the owner may do alone.

In Quebec, that last point can reach couples directly. Under article 2449 of the Civil Code of Québec, the designation of your married or civil union spouse as beneficiary, made in a writing other than a will, is irrevocable unless the designation says otherwise. With an irrevocable beneficiary on the policy, the insurer may require that person's written consent before it advances money. Ask your insurer what it requires, and read the family patrimony and the beneficiary designation before you plan around the advance.

Timing matters too. The insurer processes the request on its own timetable, so if a closing date depends on the money, ask now how long requests are taking. The full mechanics are on how a policy loan works, and an investor's version of the same question is on a policy loan for the next down payment. This route suits value that already exists, in a policy held for protection, for estate planning, or as the base of the financing approach R. Nelson Nash called The Infinite Banking Concept®. The years it takes to build that value are years a household with a near date does not have.

When does a policy advance create taxable income?

When the advance is larger than the policy's adjusted cost basis just before it. Under section 148 of the Income Tax Act, as read on Justice Laws and recorded on the policy loan page, a policy loan is a disposition of an interest in the policy. Only the part of the proceeds above the adjusted cost basis immediately before the loan is income, and the loan lowers the basis. The proceeds are generally the amount advanced, except any part the insurer applies directly to a premium. That is our reading of the Act, not a ruling on your contract.

Illustrative example. Assume you own a policy and take an advance of $30,000 toward a down payment, with no part applied to a premium.

• If the adjusted cost basis just before the advance is $40,000, no income arises, and the basis falls to $10,000.
• If the basis is $22,000, the $8,000 above it is income in that year, and the basis falls to nil.

Repaying helps later, within limits. A repayment can give a deduction under paragraph 60(s) in the year you repay, up to the amounts previously included in income, and the rest of the repayment is added back to the basis. It is a deduction, not a refund of the earlier tax; its value depends on your income that year, and it does not arise unless you repay.

Three more rules touch a home purchase:

• The interest is not deductible when the money buys the home you live in. The Act allows the deduction where borrowed money is used to earn income from a business or property (s. 20(1)(c)), and policy loan interest counts only when the insurer verifies it on Form T2210. A rental is a separate question for your accountant.
• A lapse or surrender with a loan outstanding can produce income. For tax, the proceeds are the cash surrender value less the loans owing, so income can arise to the extent that figure exceeds the basis, even when little cash reaches you. The Act's exception for a policy reinstated in time is written for lapses caused by unpaid premiums; ask the insurer and your accountant in writing whether it could apply to yours.
• A collateral loan works differently. Assigning the policy to a lender as security is not a disposition under s. 148(9), so the assignment itself creates no policy income.

Federal rules apply everywhere in Canada, and Quebec residents also file with Revenu Québec. Ask the insurer in writing for your basis and for the income it would report, and have your accountant review the figures before you borrow.

How does a mortgage lender treat a borrowed down payment?

As borrowed money, disclosed and counted. At this point the source of the funds stops being your preference and becomes a qualification question.

Federally regulated lenders follow Guideline B-20: they verify where the down payment came from, and they add safeguards when it is borrowed. The debt it creates is counted when the lender works out what you can carry, which can lower what you can borrow. CMHC's non-traditional option shows the price. On its premium table, read on 30 September 2026, a loan at 90.01% to 95% of value carries a premium of 4.50% of the loan with a non-traditional down payment, against 4.00% with a traditional one.

Illustrative example. On the $700,000 purchase above, with the $45,000 minimum down, the loan is $655,000, about 93.6% of the price. At CMHC's 4.00% premium, the premium is $26,200. At 4.50%, it is $29,475. The difference is $3,275, before any tax on the premium and before interest if the premium is added to the mortgage.

A policy advance raises its own question. CMHC's examples of non-traditional sources are unsecured loans and lines of credit, and a policy advance is secured by the policy. Our reading is that the OSFI and CMHC pages we read on 30 September 2026 do not say how every lender or mortgage insurer classifies it, or what monthly payment they would count when your contract sets no repayment schedule. Ask the lender that will fund the mortgage, in writing, before you make an offer: will you accept this source, how will you classify it, and what payment will you count? A lender that learns about the source at underwriting has a problem at the worst moment, and so do you.

What happens if income stops after closing?

Every route keeps its obligations, and they all arrive at the same time as the new mortgage. Run this test before you choose a route:

• The mortgage payment continues, and at each renewal the rate can change.
• An HBP repayment schedule continues, and a shortfall in any year is included in your income.
• A family loan continues on its terms, and the relationship carries the strain.
• A lender's loan or line continues at the lender's rate.
• A policy advance has no fixed repayment schedule unless your contract sets one. But interest still accrues, and premiums are still due. A loan that grows until it reaches the value securing it can end the policy, with the tax result described above.

Keep a reserve outside the policy and apart from the down payment. It is what stops a job loss or an illness from turning into costly credit. Decide its size first, and only then decide how much to put down.

What goes wrong with a down payment plan?

Six failures come up, and they are failures of timing and planning more than of products:

1. The horizon does not match the holding place. Money needed in three years is put in something that can fall, or money not needed for fifteen years sits in deposits and pays a long price for certainty it did not need.
2. A policy is started to hold a near-term down payment. The early cost is paid, the date arrives with less value than premiums paid, and the policy is abandoned in its weakest years.
3. The reserve is spent into the property. Moving costs and early repairs then go on high-rate credit, so the household borrows after all, on worse terms.
4. The source is assumed and not confirmed. A gift not yet committed, a facility not yet approved, or an advance nobody asked the lender about surfaces at underwriting, after the offer is signed.
5. A loan is presented as a gift. A side promise to repay behind a gift letter misstates the file the lender relies on.
6. A policy advance is left to grow. Unpaid interest compounds, the death benefit shrinks, and the policy drifts toward a lapse and a tax bill in a year when money is short.

One more test protects you from the sales version of this decision. An argument that begins by sizing your shortfall and ends by naming a product to buy has skipped the comparison. Ask to see the comparison, on the same terms for every route.

What should you ask before you commit, and who answers?

Each question belongs to someone who can answer it in writing.

Who does this suit, and who does it not?

The date-first approach suits a household with a purchase date, a household that already owns a participating policy and wants to weigh an advance honestly against savings, a gift and a lender, and anyone who wants the cost of waiting stated rather than implied.

It does not suit someone hoping a new policy will turn out to be the saving answer; over a short horizon, it is not. A household without a date yet is not bound by these requirements, and imposing them early costs years of needless caution. And a household whose real question is which registered plan to use needs a professional licensed for those plans.

What is the short version?

A down payment holds three questions. How much is set by federal rules, your lender and your closing costs. Where the money waits is set by the date and by the need not to lose value, which points to deposits whose terms match the date, inside or outside a registered plan. Where the money comes from on closing day has six ordinary answers, each with its own lender, its own interest and its own pledge.

A specially designed, high-cash-value, participating whole life insurance policy belongs only in the third question, and only when it already exists. Then it is a real option to weigh, with its interest, its tax and its lender questions answered in writing before you rely on it. The other ideas under financial decisions, explained the same way, are in money principles.

General information, not tax, legal, mortgage or investment advice. Registered plan limits are set under federal tax rules and change; confirm current figures with the CRA and your own professionals. All amounts are Canadian dollars.