Five percent down adds a premium the flyer leaves out
A flyer can quote a payment on the price minus the down payment and never mention the insurance that a small down payment triggers. The insurance is not a fee you paid at the open house. It is often added to the loan, so you pay interest on it for the whole amortization.
This note uses one house and one rate you can type again. It is not a lender’s offer, and it is not a quote from a default-insurance company.
The down payment is the small number
Price $500,000. Five percent down is $25,000. The loan before insurance is $475,000. In Canada, a down payment under 20 percent on an owner-occupied home generally requires default insurance. On this site the typical premium at 5 percent to 9.99 percent down is 4 percent of that loan. Four percent of $475,000 is $19,000. The premium protects the lender if you default. It does not insure you.
Add the premium to the loan and the financed balance is $494,000, not $475,000. A sentence that amortizes $475,000 has left $19,000 of principal out. The CMHC page does that percent. It does not add provincial sales tax on the premium. In some provinces that tax is cash due at closing, on top of the $19,000.
The same rate, two balances
The rate in this note is 5 percent, and the amortization is 25 years. Both were typed so the two payments can be compared. They are not the bond rate and not the discount your bank printed this week. Type your own contract into the mortgage page.
On $475,000 the monthly principal and interest is $2,776.80. On $494,000, same rate and same years, it is $2,887.87. The gap is $111.07 a month, about $1,333 a year. The $19,000 is still inside the balance. The flyer did not erase it. Over a year of payments you have covered a slice of it, and you are still carrying the rest.
A different down payment is a different loan
At 20 percent down or more, this insurance is usually not required. That offer is a $400,000 loan on the same $500,000 price, before any tax or fee, and it is not “the same house, a better rate.” Part of a lower payment is the missing premium. Part of it is the smaller loan. Comparing the five-percent flyer to a twenty-percent payment and blaming the whole gap on the interest rate mixes those two causes.
At 10 percent down the typical premium on this page is 3.10 percent, and the loan before the premium is smaller than $475,000. Both the rate and the base fall. At 15 percent the typical premium here is 2.80 percent. The dollar premium changes by more than the rate change alone, because you are insuring less principal.
What still is not in the payment
Property tax, heat, condo fees, mortgage life insurance, and the provincial tax on the premium are not in the $2,887.87. A stress-test rate your lender must use is not the contract rate you typed. If the premium is paid in cash instead of added to the loan, the balance stays $475,000 and the $19,000 leaves your bank account at closing instead. Run the case you were actually offered.
Use the form
These notes are estimates for everyday use. They are not tax, payroll, mortgage, or legal advice. Type your own contract into the calculator.