Buy vs rent guide
Buy vs rent for first-time buyers
First-time buyers face a buy vs rent decision with the thinnest cushion: a small down payment, added insurance costs and no home equity to fall back on. This guide works through an illustrative first purchase so you can see which choices move the answer.
Start with the rules that apply to a first purchase
The federal minimum down payment is 5% of the first $500,000 of the price plus 10% of the portion from $500,000 to under $1.5 million. Homes at $1.5 million or more need 20%. Insured mortgages are capped at purchase prices under $1.5 million.
A down payment below 20% requires mortgage default insurance. The premium is a percentage of the loan: 4.00% for 5 to 9.99% down, 3.10% for 10 to 14.99%, and 2.80% for 15 to 19.99%. It is usually added to the mortgage, and 0.20% more applies if the amortization exceeds 25 years.
First-time buyers and buyers of newly built homes can use a 30-year amortization on an insured mortgage. Confirm eligibility with your lender, since rules like this are updated.
An illustrative first purchase
Suppose a $550,000 home, with a rent of $2,200 a month for a comparable place. The mortgage rate is 4.5% and the other calculator defaults apply: 3.5% yearly appreciation, 3% rent growth and a 5.5% return on the renter's investments. These are illustrative inputs, not market figures.
The minimum down payment on $550,000 is $30,000: 5% of the first $500,000 ($25,000) plus 10% of the other $50,000 ($5,000). The insurance premium is about $20,800, added to the mortgage. With closing costs, the cash needed on day one is about $36,395.
The monthly cost of the owner starts at about $4,024, compared with about $2,225 for the renter. That gap is the amount a renter would be able to invest each month, on top of the down payment they did not spend.
How the size of the down payment changes the result
A bigger down payment reduces the loan, the insurance premium and the monthly payment, but it also ties up more cash. The table shows the outcome after 10 years for the same $550,000 home.
The largest effect is on the break-even point: it comes much sooner when the premium disappears at 20% down.
| Down payment | Mortgage insurance premium | Buyer minus renter after 10 years | Approx. break-even |
|---|---|---|---|
| Minimum ($30,000) | $20,800 | +$25,084 | 7.8 years |
| 10% | $15,345 | +$31,221 | 7.1 years |
| 20% | None | +$50,094 | 5.0 years |
The time horizon is the swing factor
For a first-time buyer with the minimum down payment, the length of stay is what decides the outcome. The costs of the premium, the closing costs and the selling costs have to be repaid before buying pulls ahead.
On the same $550,000 example with the minimum down payment, the buyer is behind by $38,493 after 3 years and by $17,990 after 5 years. After 10 years the buyer is ahead by $25,084, and after 15 years by $77,712.
The practical question is not only whether you can afford the purchase but whether you expect to stay long enough for it to pay off. If you are unsure, the time horizon guide can help.
Use the incentives, and note that renters can too
A First Home Savings Account (FHSA) allows $8,000 a year and $40,000 in total. Contributions are deductible and qualifying withdrawals for a first home are tax-free. Up to $8,000 of unused room can be carried forward, though you should confirm the current rules.
The RRSP Home Buyers' Plan lets you withdraw up to $60,000 per person, repaid over time. The Home Buyers' Amount is a federal non-refundable credit worth up to $1,500 for eligible first-time buyers.
Renters can also use TFSA, RRSP and FHSA room, so these accounts are not exclusive to buyers. See down payment sources for a comparison and the first home savings tool to project your balance.
Qualifying and the stress test
Lenders test whether you can carry the mortgage at a higher rate than the one you will pay. The standard is the greater of your contract rate plus 2 percentage points or 5.25%. This is why the amount you can borrow may be lower than what you would be comfortable paying at today's rate.
Before shopping seriously, speak with a mortgage professional about your own limit. See the stress test guide for how it works.
Questions a first-time buyer should settle first
Before you commit, make sure you can answer the questions below in your own situation. If you cannot, renting for a while longer to strengthen your savings may be a reasonable choice.
- How long do I realistically expect to stay in this home?
- After the down payment and closing costs, how much emergency savings remain?
- Can I afford the payment if the rate is higher at renewal?
- Have I included property tax, insurance, maintenance and utilities, not only the mortgage?
- Is the premium and extra interest from a small down payment worth the earlier start?
Questions people ask
What is the minimum down payment for a $550,000 home?
It is $30,000: 5% of the first $500,000 plus 10% of the remaining $50,000. Mortgage default insurance applies because the down payment is under 20%.
Is it better to wait until I have 20% down?
Not necessarily. In this example, 20% down reached break-even sooner, but waiting costs time and you pay rent in the meantime. Compare both paths in the calculator.
Can I use both an FHSA and the Home Buyers' Plan?
The rules on combining them are set by the Canada Revenue Agency and can change, so confirm the current conditions before you plan around using both.
Does a first-time buyer pay less in closing costs?
Some provinces offer rebates or exemptions on transfer taxes for first-time buyers, such as Ontario and British Columbia. Alberta has no land transfer tax. Confirm what applies where you buy.
Official references
Educational information, not financial, tax, legal or mortgage advice. Rules and rates change; confirm current details with an official source or a qualified professional.