5% vs 20% Down Payment on a $400K Home: Which Is the Better Move?

When you’re buying a home in Canada, one of the biggest questions you’ll face is:

“Should I put down the minimum 5%, or go all-in with 20%?”

The choice can have a major impact on your monthly payments, the total cost of your mortgage, and even how quickly you can pay off your home.

Before we jump in, here’s a quick tip: the stronger your down payment, the better your financial starting point. If you want to know how to build a better down payment faster, watch for my next blog — I’ll share strategies you can use right away.

For now, let’s walk through real numbers on a $400,000 home so you can see how the two options stack up.

Scenario 1: 5% Down – Insured Mortgage

• Home Price: $400,000

• Down Payment: $20,000 (5%)

• CMHC Insurance Premium: $15,200 (added to mortgage)

• Mortgage Amount: $395,200

• Interest Rate (Insured Rate): ~4.09%

• Monthly Payment: ≈ $2,098

• Total Interest Over 25 Years: $234,247

Key Notes:
Even though you pay a CMHC insurance premium, insured mortgages often get slightly lower interest rates. This partially offsets the cost of that premium.

Scenario 2: 20% Down – Conventional Mortgage

• Home Price: $400,000

• Down Payment: $80,000 (20%)

• Mortgage Amount: $320,000

• Interest Rate (Conventional Rate): ~4.44%

• Monthly Payment: ≈ $1,760

• Total Interest Over 25 Years: $208,137

Key Notes:
Here, you avoid CMHC fees entirely and start with more equity. Your monthly payment is lower, but the interest rate is slightly higher.

The 25-Year Cost Difference

When you add up the numbers, the insured 5% down payment mortgage costs about $41,000 more over 25 years compared to the 20% down option.

But the story doesn’t end there. Let’s explore two strategy tweaks that can shift the numbers in your favour.

Scenario 3: 5% Down with a Big Prepayment in Year 1

Instead of using $80,000 up front, you:

1. Put down $20,000 (5%) at closing.

2. Put the other $60,000 toward the mortgage within the first year as a lump-sum prepayment.

Result:

• Mortgage Amount After Prepayment: $335,200

• Rate: ~4.09%

• Monthly Payment: ≈ $2,098

• Total Interest Paid: $148,046

• Mortgage Paid Off In: 19 years, 3 months

✅ Lowest total interest paid
✅ Cuts nearly 6 years off your mortgage
❌ Higher monthly payment stays the same after prepayment

Scenario 4: 20% Down with Accelerated Payments

Here, you start with 20% down but match the monthly payment from Scenario 3 by voluntarily paying more each month.

Result:

• Mortgage Amount: $320,000

• Rate: ~4.44%

• Monthly Payment: ≈ $2,098

• Total Interest Paid: $149,565

• Mortgage Paid Off In: 18 years, 6 months

✅ Pays off the fastest of all scenarios
✅ No CMHC premium
✅ More equity right from the start
❌ Requires payment discipline every month

Key Takeaways for Buyers

• 5% Down + Early Prepayment: Can save the most in total interest while still benefiting from lower insured mortgage rates.

• 20% Down + Accelerated Payments: Offers stability, avoids insurance, and gets you mortgage-free fastest.

• The Best Option Depends on Your Lifestyle: If you’re comfortable with a higher monthly payment and want flexibility, the 5% + prepay route can work well. If you want peace of mind and equity from Day 1, go with 20% and accelerate your payments.

My Advice as Your Realtor

There’s no single “right” answer — your best choice depends on your cash flow, comfort with risk, and long-term goals.

If you’re ready to start exploring your options, I can connect you with a trusted mortgage expert who can run the numbers for your exact situation and help you find out if you qualify for the 5% down program.

📞 Let’s Talk Strategy
Before you start house hunting, let’s make sure your financing plan is set up to give you the most buying power and the least long-term cost.

💬 Call/Text me at +1 236-457-4230 or send me a message through my website to get started.