The Role of Down Payments in Mortgage Approval

Author: Jeff Cody | | Categories: Mortgage Pre-Approval , Private Mortgages , Purchase Mortgages

Blog by Jeff Cody

Everyone dreams of owning their own home, but the process of getting a mortgage can be overwhelming, especially for first-time homebuyers. One of the most crucial aspects of mortgage approval is the down payment, which can affect your eligibility for a mortgage, your overall mortgage payments, and interest rates.
As a part of the esteemed Mortgage Architects network, Jeff Cody’s goal is to help you navigate the Canadian mortgage market and provide you with the latest information on the role of down payments in mortgage approval.

In this blog, I will explain the importance of down payments and how they affect your mortgage payments and interest rates. Whether you are a first-time homebuyer or looking to refinance your current mortgage, I am here to help you find the ideal mortgage solution that suits your unique needs. Let's dive into the role of down payments in mortgage approval.

What is a Down Payment?

A down payment is a lump sum of money that you pay upfront when purchasing a property. The down payment is a percentage of the total purchase price and is typically between 5% and 20%. For example, if you are purchasing a home for $500,000 and the down payment is 10%, you will need to pay $50,000 upfront.

The Role of Down Payments in Mortgage Approval

When you apply for a mortgage, the lender will evaluate your financial situation, including your credit score, income, and debt-to-income ratio. The down payment is an essential factor in determining your eligibility for a mortgage. The more substantial the down payment, the lower the risk for the lender. A larger down payment means that you have more equity in the property, reducing the lender's risk of losing money if you default on the loan.

The minimum down payment required is 5% of the total purchase price. However, if your down payment is less than 20%, you will need to purchase mortgage default insurance, which protects the lender in case of default. The insurance premium is added to your mortgage.

The Benefits of a Larger Down Payment
While a 5% down payment may be the minimum requirement, putting down a more substantial amount can have several benefits, including:

1. Lower Monthly Payments: A larger down payment means that you are borrowing less money, resulting in lower monthly payments.

2. Lower Interest Rates: Lenders offer lower interest rates for borrowers with larger down payments, as they are less risky.

3. Equity: A larger down payment means that you have more equity in your property, which can be used for future investments or renovations.

4. Mortgage Default Insurance: If you put down more than 20%, you do not need to purchase mortgage default insurance, saving you money on insurance premiums.

How to Save for a Down Payment

Saving for a down payment can be challenging, but there are ways to make it easier. Here are a few tips to help you save for a down payment:

1. Create a Budget: Creating a budget can help you identify areas where you can cut back on expenses and save more money.

2. Set a Savings Goal: Determine how much you need to save for a down payment and set a realistic savings goal.

3. Automate Your Savings: Set up automatic transfers from your chequing account to a savings account to make saving easier.

4. Use Your RRSP: The Canadian government's Home Buyers' Plan allows first-time homebuyers to withdraw up to $35,000 from their RRSP tax-free to use towards a down payment.

The First Home Savings Account (FHSA)

The FHSA is a special savings account available to Canadian residents who are looking to save for their first home. This account is designed to provide incentives for individuals who are saving towards their first home purchase. One of the key benefits of an FHSA is that the money saved in the account is eligible for tax-free interest, which means that account holders can carn more on their savings without having to pay taxes on the interest earned.


The down payment plays a significant role in mortgage approval, and a larger down payment can have several benefits. Saving for a down payment may seem daunting, but with a bit of planning and discipline, it can be done.

As a licensed mortgage broker, I Jeff Cody, can help you navigate the mortgage process and find the ideal mortgage solution that suits your unique needs. Contact me today to learn more about how I can help you achieve your homeownership goals.
To learn more about the services, please click here or call (613) 724-9602.