How to save for a down payment towards a home

Owning a home is an exciting milestone, and one of the first steps is to save for a down payment. But with the average Canadian house price coming in at about $650,000¹, starting this journey can feel overwhelming.

We’re here to help you understand mortgages and what registered accounts are available to help you save.

A mortgage is a loan that you borrow from a bank, credit union or private lender that can be used to finance the purchase of a home. It’s a legal contract between you (a.k.a. the borrower) and the lender. A mortgage outlines the details of your loan, including your payments, the length of your term, interest rate and other terms you need to know.  

As the borrower, you agree to repay the principal of the loan (amount you borrow), as well as any interest on the principal, at an agreed interest rate over the course of a predetermined loan term and amortization period (the length of time to repay your mortgage loan in full).

In Canada, borrowers can amortize their mortgage loans over periods of up to 30 years. This means that payments are calculated so that the mortgage is paid within 30 years. However, mortgage terms can be as short as six months with an average loan term length of about three to five years. Borrowers usually renew their mortgage or refinance at the end of each loan term.

Learn more about how mortgages work here. 

A down payment is the amount of money that you need upfront to put towards the home purchase to supplement your mortgage. The minimum down payment is between 5% and 20% of the purchase price.

What you need to put down initially depends on the amount of the purchase price. Here is the breakdown of the minimum down payment: 

• For homes priced $500,000 or less: 5% minimum down payment
• For homes priced between $500,000 and $999,999: 5% on the first $500,000 and 10% on the remaining amount
• For homes priced over $1,000,000: 20% down payment

Note: If your down payment is less than 20% of the purchase price – you will need to buy mortgage default insurance. Effective December 14, 2024, mortgage default insurance applies to homes up to $1.5 million.

Here’s the calculation based on the purchase price:

• For homes priced $500,000 or less:
  You need to take your purchase price and multiple it by 5% to get your down payment.
  • Ex. on a $500,000 home: $500,000 x 5% = $25,000 
• For homes priced between $500,000 and $999,999:
  You will need to add two amounts. The first is 5% of $500,000. The second amount if 10% of the remaining price of the home.
  • Ex. on a $750,000 home:
    • $500,000 x 5% = $25,000
    • $250,000 x 10% = $25,000
    • $25,000 + $25,000 = $50,000
      
• For homes priced $1 million and above, you need to multiply by 20%:
  • Ex. on a $1,000,000 home:
    • $1,000,000 x 20% = $200,000

While you're only required to make one of the minimum down payments outlined above, you might decide to make a larger down payment. Making a larger down payment can help you:

• Qualify to buy a more expensive home
• Reduce the amount you pay each month
• Reduce the interest you pay over the life of your loan
• Save yourself the cost of CMHC insurance (can range from 1.70% to 3.10% of your mortgage payments)

If you dream of buying a home, it's important that you build your budget around making that dream come true. First, you might want to use an affordability calculator to help you figure out how large of a mortgage you can handle. Then, when you look at how much you can afford to spend on housing, food or other expenses, decide what you'd like to put aside every month towards saving for homeownership.

Consider choosing a percentage of your paycheque to direct into savings. It might be anything from 5% to 20% each month. Once you've decided on that, you can divide up the rest of your budget towards your wants and needs. That will help you choose a rental apartment or home, whether to buy a car or use public transit and make other financial decisions that are in line with your home ownership goal.

Unsure where to start? Scotia advisors can help you make a home ownership savings plan.

The fastest way to save money for any financial goal is to make it so easy that it’s part of your routine. You can set up pre-authorized contributions after your monthly, biweekly or weekly paycheques. 

By immediately putting the money into your saving or investing accounts, you won't be tempted to spend it. You'll also earn interest on the money, which could help you save up the money you need sooner.

While it can be hard to find extra money to put towards saving for a down payment, you can direct any expected or unexpected windfalls towards your savings. For example, if you get a tax refund, you can put that towards your down payment. Does your work give you a bonus? Put that towards your down payment, too. Any amount you can add to your savings goals can help. 

The Government of Canada introduced the First Home Savings Accounts (FHSAs) in 2023. This is a registered savings account in which first-time homebuyers in Canada can contribute up to $8,000 per year, up to a lifetime maximum contribution limit of $40,000 per taxpayer.

When you make a contribution to an FHSA, you'll be able to take a tax deduction to help offset the tax you paid on that $8,000 in that year. You may carry forward up to $8,000 of your unused annual contribution amount to use in a later year. The money then grows tax-free and can be withdrawn for your first home purchase without incurring taxes.² You also don’t need to make a repayment on the money that you withdraw from the FHSA. 

While RRSPs are primarily for saving for retirement, the government lets taxpayers use a portion of RRSP savings to put towards a down payment on their first home. This plan, called the Home Buyers' Plan, allows you to withdraw up to $60,000 from your RRSP funds to put towards your first home. If you choose to do so, you'll have to make an annual repayment and repay the funds within 15 years.

RRSP contributions are limited to up to 18% of your previous year's earned income, up to a maximum of $31,560 for 2024, plus your unused RRSP contribution room at the end of the previous year.

You can use the Home Buyer’s Plan and the FHSA together to save towards your first home. 

A TFSA is a registered account where the income you earn is tax-free. You don't get a tax credit for investing, but once your funds are in the TFSA, any interest, dividends or capital gains can grow tax-free. 

It’s great for investing for short- and medium-term financial goals, like buying a home. If you have maxed out your RRSP contribution room and FHSA contribution room, a TFSA is a great alternative account to save for a down payment. In addition, you have the freedom to withdraw funds any time you want.

While buying a home might feel overwhelming, if you save consistently and strategically, you'll be able to make your home ownership dream come true much sooner. A Scotia advisor can work with you to create a savings plan to help you get closer to walking into your very own home.