Deposit vs. Down Payment in Canada: What’s the Difference and Why It Matters

Tim Lyon • June 27, 2024

If you're buying your first home—or even your second or third—there are dozens of terms flying around that sound similar but mean very different things. Two of the most commonly confused? Down payment and deposit.


They both involve money. They both happen during the buying process. But they serve completely different purposes, come due at different times, and mixing them up can create serious stress (and financial headaches).



This post breaks down what each term means, when the money is due, and how to avoid common mistakes that can cost you real dollars.


What is a Down Payment?

Your down payment is the portion of the home's purchase price that you pay out of pocket—before the mortgage kicks in. It's your initial equity in the property.


How it Works

Let's say you're buying a home for $500,000. You have $100,000 saved up, and you secure a mortgage for the remaining $400,000. That $100,000 you're contributing? That's your down payment. It represents 20% of the home's price.

Your down payment percentage matters because it determines whether you'll need to pay mortgage default insurance (also called CMHC insurance). If your down payment is less than 20% of the purchase price, you'll be required to purchase this insurance, which protects the lender in case you default on the loan. The insurance premium is added to your mortgage balance.


When its Due

Your down payment is due at closing, the day the transaction completes.


What is a Deposit?

Your deposit is an upfront amount you pay when you finalize your purchase agreement with the seller. It's a sign of good faith that shows you're serious about buying the home.


How it Works

When you make an offer on a home and it's accepted, you'll typically include conditions (called "subjects") like financing approval or a home inspection. Once those conditions are satisfied and you remove the subjects—meaning the deal is now firm and you're committed to buying—you pay the deposit.

The deposit is held in a trust account, usually by the selling realtor's brokerage, until the deal closes. At closing, your deposit is applied toward your down payment.


When its Due

The deposit is due when your offer goes firm, which happens at subject removal. This is typically within a few days to a couple of weeks after your offer is accepted, depending on the terms of your contract.


How much is it?

Deposits generally range around 5% of the home's purchase price, but the exact amount is negotiable and depends on the terms of your offer.


How Do They Work Together?

  • The deposit is paid first, when subjects are removed and the offer is firm. It is part of your down payment.
  • The rest of your down payment is due on closing, along with your closing costs.


Important Considerations

  • Do not agree to a deposit that is larger than your actual down payment amount if you are planning a minimum down payment. A too-large deposit can create a cash crunch because the mortgage will not cover it. Coordinate with your realtor and plan for any gifts, investment sales, or other funds in advance.
  • Make sure deposit funds are liquid and accessible for subject removal. They cannot be tied up in pending transfers or investments when you need to write the cheque or send the wire.


Real-World Example

Scenario: Purchase price $600,000

  • Offer goes firm: You pay a 5 percent deposit of $30,000 into the listing brokerage’s trust account. This money is now committed to the deal and will be applied to your down payment at closing.
  • Closing day: You planned a 10 percent total down payment of $60,000. Since you already paid $30,000 as the deposit, you bring the remaining $30,000 to your lawyer along with closing costs. Your mortgage funds the rest.


What can go wrong

If you only intended a 5 percent down payment but agreed to a 7 percent deposit, you would need extra cash quickly to meet that deposit. Avoid this mismatch.


Quick Summary

  • Down payment: Your total contribution to the purchase, paid at closing. Sets your loan size and may affect insurance.
  • Deposit: Good-faith money when your offer goes firm, sits in trust, and counts toward your down payment. Usually about 5 percent. Risk of loss if the deal does not complete.
  • Pro tip: Align your deposit with your planned down payment and ensure funds are liquid on subject removal.


Next Steps

Planning a purchase and unsure how much to put down or how large your deposit should be? I can help you structure the numbers and the timing so you stay on track. Book a consultation or call 778-988-8409.


Glossary

Deposit: The good-faith amount you pay when your offer goes firm; held in trust and applied to your down payment at closing. Typically about 5 percent of the price.

Down Payment: The portion of the purchase price you pay out of pocket at closing; determines your mortgage size and may affect default insurance.

Equity: The difference between the value of your home and what you owe on your mortgage.

Mortgage Default Insurance: Insurance required on certain purchases based on down payment percentage; protects the lender, not the borrower.

Subject Removal: The point when all conditions in the offer are satisfied and the deal becomes firm, which is when the deposit is typically due.

Tim Lyon

Mortgage Consultant

Mortgage Renewal vs. Refinance: Understanding the Key Differences

By Tim Lyon • November 25, 2025
If you own a property with a mortgage, you've probably heard the terms "renewal" and "refinance" thrown around. While both involve obtaining a new term for your mortgage, there are some important differences to understand. Let's break down what each one means and when you might use them. Understanding Mortgage Basics In Canada, when you take out a mortgage, the payments are typically spread over 25 to 30 years. This period is known as the amortization. However, unlike in the U.S., Canadians do not keep the same interest rate and payment terms for the entire amortization period. Instead, you have an initial term, usually 3 to 5 years, after which you need to renew into a new term. For example, if you have a 25-year mortgage with 5-year terms, you will need to renew your mortgage four times throughout its lifespan. It's also common to have a mix of different term lengths over the course of your mortgage. What is a Mortgage Renewal? A mortgage renewal occurs at the end of your mortgage term. When you renew, you start a new term with a new interest rate while keeping the remaining details of your mortgage the same. The key element here is that the mortgage charge registered on your property's title remains unchanged. A renewal is straightforward and typically does not involve any significant changes to your mortgage agreement other than a new interest rate. Think of it as hitting the "continue" button on your mortgage, but at new rates. What is a Mortgage Refinance? A mortgage refinance is different. When you refinance, you are making changes to your original mortgage agreement. This means paying off your existing mortgage and registering a new one on your property's title. Essentially, you are taking out a completely new mortgage for the same property. People commonly refinance to: Access the equity in their home for investments or major purchases Consolidate high-interest debt into their lower-rate mortgage Extend the amortization period to reduce monthly payments and improve cash flow Make significant changes to their mortgage structure It's important to note that refinancing is not allowed for insured properties (those with less than a 20% down payment at purchase). This means the maximum loan amount in a refinance is 80% of your property value. What About Switching Lenders? If you want to keep everything the same but switch lenders for a better rate, this is known as a transfer. A transfer is a type of renewal where the original mortgage charge is transferred from one lender to another. Depending on the lenders involved, you might be able to make minor changes (like extending the amortization or changing borrowers) without needing a full refinance. Why Timing Matters Your mortgage maturity date is when your current term ends. This is the ideal time to either renew or refinance. If you refinance or switch lenders before the maturity date, you will face a prepayment penalty. If you refinance, renew or transfer at maturity, there is no penalty. Real-World Example A homeowner with a $450,000 mortgage is reaching the end of their 5-year term. Their lender offers a renewal rate, but they also have $40,000 in high-interest credit card debt. Option 1: Renewal They accept the new term. Their mortgage stays the same. Their debt remains separate at high interest rates. Option 2: Refinance at Maturity They consolidate the credit card debt into the new mortgage. Their total monthly payments drop significantly, even after accounting for the new mortgage balance. In this situation, refinancing provides better cash flow and a simpler payment structure. Quick Summary Mortgage Renewal: Starts a new term for your existing mortgage Mortgage charge on your title stays the same Keeps all other terms the same aside from interest rate Can switch lenders at renewal through a transfer No penalty when done at maturity Mortgage Refinance: Pays off current mortgage and creates a new one New mortgage charge registered on your title Often resets the amortization period Can access equity or make structural changes Maximum 80% of property value for uninsured mortgages Incurs penalty if done before maturity Next Steps Understanding the difference between renewal and refinance helps you make informed decisions about managing your mortgage. If you have a renewal coming up or are considering accessing your home equity, now is a good time to explore your options. Whether you're looking to renew, refinance, or switch lenders, I'm here to help you navigate the process and find the best solution for your situation. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Amortization: The total time period over which you'll pay off your mortgage, typically 25-30 years in Canada. Insured Mortgage: A mortgage where the down payment was less than 20%, requiring mortgage default insurance to be added. Maturity Date: The end date of your current mortgage term, when you need to renew or refinance. Mortgage Charge: The legal registration of your mortgage on your property's title. Pre-payment Penalty: A fee charged by your lender if you pay off your mortgage before the end of your term. Refinance: Replacing your existing mortgage with a new mortgage, often with different terms or to access equity. Renewal: Starting a new term for your existing mortgage, typically just updating the interest rate. Term: The length of time your current mortgage contract is in effect, typically 3-5 years in Canada. Transfer: Moving your mortgage from one lender to another at renewal without changing other terms.

What Is an Insured Mortgage and How Does It Work?

By Tim Lyon • October 28, 2025
If you're buying a home with less than 20% down, you'll need something called an insured mortgage. Many borrowers find this confusing at first, especially since it doesn’t refer to insurance for you, the borrower. That’s why I have put together this straightforward breakdown so you understand what insured mortgages are, why they exist, and how they affect your purchase. What Is an Insured Mortgage? A mortgage must be insured when a borrower makes a down payment of less than 20% on a home purchase. The insurance protects the lender (not the borrower) in case the borrower defaults. The insurance is guaranteed by the federal government. So, why do we have this program? It allows borrowers to buy homes with smaller down payments and higher loan-to-value (LTV) ratios. Higher loan-to-value mortgages are inherently more risky because there is not much cushion if the housing market starts to decline. For example, if someone buys a $500,000 home with only 5% down ($25,000), they’ll need a $475,000 mortgage—this is a 95% LTV . If the market drops and the home’s value falls to $470,000, the mortgage would still be $475,000. If the borrower stopped making payments, the lender could lose money after selling the home and paying costs. That kind of loss, multiplied across thousands of borrowers, could threaten the stability of the entire banking system (as we saw in the U.S. in 2008). The mortgage insurance system is designed to prevent that scenario by spreading risk and keeping lenders protected. How Does the Insurance Work? You, the borrower, pay the insurance premium. It's typically added directly to your mortgage balance rather than paid upfront. The cost depends on your down payment size and amortization. Example: Purchase price: $500,000 Down payment: $25,000 (5%) Mortgage amount: $475,000 Insurance premium: 4.2% = $19,950 Total new mortgage: $494,950 The insurance does add cost, but insured mortgages usually offer slightly lower interest rates because the lender's risk is minimal. The rate savings don't fully offset the premium, but they help. The Insurer’s Role For insured mortgages, the insurer’s approval is the most important part of the process. If the insurer won’t approve the file, no lender can. Once the insurer signs off, we can typically find a lender to fund the loan. Canada has three mortgage insurers: CMHC (public) Sagen (private) Canada Guaranty (private) All of the insurers are backed by government guarantees and have to follow similar rules, but each has a few unique programs. Lenders usually choose the insurer, though I sometimes work with them to send a file to a specific insurer if it benefits the borrower. Qualification Rules Because insured mortgages are government-backed, the rules are strict: Debt ratios: 39% of your income can go toward your stress-tested mortgage payment, property taxes, heat, and half of condo fees 44% of your income can go toward the above plus your other debts Down payment: 5% on the first $500,000, 10% on the remainder Maximum purchase price: $1.5 million Amortization: Maximum of 25 years for most buyers; up to 30 years for first-time buyers who qualify under the new federal program Unlike with an uninsured mortgage, where lenders may have some flexibility if your income ratios are slightly above the limits, there is no discretion on an insured mortgage. If your ratios exceed the limits even a little bit, the insurer will decline the application. The Approval Process The process is similar to an uninsured mortgage, with one extra step: We submit your mortgage application to the lender of choice They do their initial review If that looks good, they package it up and send it to the insurer Once the insurer has reviewed and approved it, the file comes back to the lender for final review and approval Common Misunderstandings About Insured Mortgages Many borrowers are surprised to learn the following facts about insured mortgages: You do not need to be a first-time homebuyer to buy with less than 20% down You cannot buy an investment property with less than 20% down You can buy a second home with less than 20% down You cannot refinance an insured mortgage and keep the insurance. If you have an insured mortgage and do refinance, you will lose the insurance. This mostly affects the lender, but it also moves you to uninsured rates. Why Choose an Insured Mortgage? Given the cost and restrictions, why would anyone choose an insured mortgage? The main reason is accessibility . It allows you to buy a home without saving a full 20% down payment, which is increasingly difficult with high home prices and living costs. It can also be a strategic choice. Some buyers prefer to keep more of their savings invested or diversified instead of tying everything up in a down payment. If your investments are earning more than your mortgage costs, keeping that money invested might make financial sense. Real-World Example Let's say you're buying a $600,000 home. Here's how the costs compare between the minimum down payment for an insured mortgage and the minimum down payment for an uninsured mortgage: