How Your Down Payment Affects the Total Cost of Your Mortgage

The more you have now the more you'll save in interest over the years.

At the risk of stating the obvious, the bigger the down payment, the smaller the mortgage, which in turn saves you a considerable amount of money in interest costs. But, how much in savings on interest are we really talking about?

The amount you can save, of course, will depend on your mortgage rate, the size of your mortgage, and the amortization period. Every person's situation will be unique, so we're going to make a few assumptions to give you an idea:

  • The sale price of the home you want to buy is $470,253—the average price of a home in Canada as reported this past January by the Canadian Real Estate Association.
  • The mortgage rate is four per cent for the entire 25-year amortization period. (Last year's average mortgage rate in Canada was 3.02% according to Mortgage Professionals Canada.)
  • The mortgage loan insurance premiums (if required) are the new premiums effective March 17, 2017.
  • The mortgage loan insurance premiums will be added to the mortgage loan.
  • Mortgage payments are made monthly.

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Dollars and cents: Save more for your down payment now to save more money later

Using the Government of Canada's mortgage tool that tallies up the total cost of a mortgage, the following shows the difference in interest paid depending on the size of the down payment we put on our $470,253 home.

Down payment Mortgage Loan Insurance Premium Mortgage Loan with Premium Included Interest Paid Over 25 Years
$23,513 (5%) $17,870 (4% of mortgage) $462,610 $267,417
$47,026 (10%) $13,120 (3.1% of mortgage) $436,347 $252,235
$70,538 (15%) $11,192 (2.8% of mortgage) $410,907 $237,529
$94,051 (20%) $0 $376,203 $217,468

The difference between saving a five per cent down payment and a 20 per cent down payment for the same house is almost $50,000 in interest paid over the lifetime of your mortgage! Not to mention, the thousands of dollars you save by not having to purchase mortgage loan insurance. The more you save for your down payment now, the more money you'll save over the years.

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