A rental property you do not plan to live in needs a down payment of at least 20 percent of the purchase price in Canada. The rule holds whether the rental property is a condo, a house, or a duplex you lease out in full. Owner-occupied homes can qualify for much less, but a pure investment property cannot be insured, so 20 percent is the floor on the down payment.
The reason traces back to mortgage default insurance. Insurers such as CMHC, Sagen, and Canada Guaranty back loans on homes the borrower actually lives in, which is what lets buyers of a primary residence put down as little as 5 percent. That protection does not extend to a home bought only to rent out. Without it, the lender carries more risk, so it asks the investor to fund a larger share up front. This is the same reason mortgage default insurance shapes so much of how Canadian mortgages are priced.
The picture shifts if you occupy part of the building. Under rules that took effect in recent years, an owner living in one unit of a property with up to four units can still reach an insured mortgage, starting at 5 percent down on the first $500,000 and 10 percent on the portion above that. A three or four unit building that nobody lives in often needs 35 percent or more. The same triplex can carry very different terms depending on whether you move in, which is why the numbers diverge from what you would put down on a home you plan to live in.
Size of the down payment is not the only difference. Lenders tend to price rental mortgages at slightly higher interest rates, and they look closely at whether the rental math works. Most will count a portion of the expected rent toward your income when they run your debt service ratios, though how much they accept varies by lender. Your borrowing room still rests on those ratios.
In Toronto, where a one-bedroom investment condo can list above $600,000, a 20 percent down payment works out to roughly $120,000 in cash, and that is before land transfer tax, legal fees, and other closing costs. Knowing that figure early tells you how much property your savings can realistically reach.
Related reading: How Much Down Payment Do You Need in Toronto?, What Is Mortgage Default Insurance in Ontario?, and What Are GDS and TDS Ratios in a Canadian Mortgage?.
