With the price of homes in Toronto being as high as they are, coming up with a decent down payment can be a tough endeavour. Between rent, student loan debt, credit card debt, and other financial obligations putting away money every month to save up for a down payment can be a real challenge.

For a couple with two incomes, saving for a down payment is a huge feat. But for a singleton going at it alone, the task of saving up tens of thousands of dollars to buy a home can seem insurmountable.


READ: The Millennial’s Guide To Saving For A Condo Downpayment

So, how long would it take for a single person to save up for a down payment in Toronto? And what are some ways to save up such a large amount of money? Read on to find out.

How Much Do You Need to Save?

The type of mortgage you plan to take out will dictate how much you need to come up with for a down payment. For example, high-ratio mortgages require a minimum down payment amount of 5 per cent of the purchase price. However, lenders may require more depending on the borrower's financial profile.

Conventional mortgages, on the other hand, require a down payment of at least 20 per cent of the purchase price. By putting down this amount, you can effectively avoid paying mortgage default insurance — or CMHC insurance — which lenders require for loans that are more than 80 per cent of the value of the home being purchased. Mortgage default insurance is required to protect lenders in case borrowers default on their loan payments.

READ: Canadians Are Committed To Paying Down Their Mortgages Quickly

How Long Should it Take to Save For a Down Payment in Toronto?

The more money you can put down on a home purchase, the less your mortgage will cost you. That means your loan amount will be smaller and the amount of time it will take you to fully repay your loan will be less.

The question is, how long will it take you to come up with this lump sum of money on your own as a single person in Toronto?

The answer will depend on:

  • The price of the home you plan to buy
  • How much you plan to save
  • What your financial resources are like
  • How hard you're willing to work to save

To illustrate how long it would take you to save up for a home in Toronto, let's use a couple of hypothetical situations.

Let's say, as an example, that the average price of a home in Toronto is $763,600. If you were to apply for a high-ratio mortgage that requires a 5 per cent down payment, you would need to save up $38,180. If you were to put away $500 per month, it would take you just over 6 years to save that amount.

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If you wanted to be more ambitious and save for a 20 per cent down payment in order to avoid having to pay extra towards mortgage default insurance, you would have to come up with $152,720. In this case, you would have to be a lot more aggressive with your savings, and $500 wouldn't be enough.

If you were to stick with a $500-a-month savings plan, it would take you over 25 years to save up $152,720. But if you were able to save $1,200 a month, it would take you just over 10 years to save this amount.

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Clearly, saving up 20 per cent on our $763,600 example purchase is much more difficult to do.  Aiming for a 5 per cent down payment amount might be more feasible.

Of course, the purchase price of the home matters a great deal. While the average price of a home in Toronto in November, 2019, was $843,637, that doesn't mean there aren't homes that are priced well under that mark. For instance, you can easily find a condo in Toronto around $400,000. In fact, there are current listings for condos that are priced under that amount.

For a $400,000 home, a 5 per cent down payment would amount to $20,000. In this case, it would take you just over 3 years to save this amount if you were to put $500 a month away. This is more doable compared to the previous two illustrations.

READ: Buyers: How To Maximize Your Down Payment Savings

Tips For Saving For a Down Payment

So, how do you go about saving all this money for a down payment for a home in Toronto? Here are a few tips to help make that happen.

Automate Your Savings

You're obviously going to have to put a certain amount of money away each month to save up for a down payment. But rather than manually transferring funds from your checking account into a dedicated savings account, consider having your savings automated.

That way, the amount you specify will be automatically deducted from your checking account and transferred to your savings account every month without you having to do anything.

Pay Down Your High-Interest Credit Card Debt

While saving up for a downpayment is important, you might be inadvertently throwing money out the window with all the interest payments you're making on high-interest debt such as credit cards. If you have a large outstanding debt load that's being charged a high-interest rate, you might be better off tackling that debt first.

READ: Ask An Agent: What’s The Most Affordable Way To Enter The Toronto Real Estate Market?

Bank Occasional Good Fortunes

If you're ever gifted with a higher-than-expected tax return, monetary gift, bonus at work, or a big commission check, bank that cash. Resist the urge to splurge and put that money directly into your down payment savings account.

Borrow From Your RRSPs

Under the Home Buyers' Plan (HBP), first-time homebuyers have the distinct advantage of borrowing up to $25,000 in a calendar year from RRSPs to be used towards purchasing a home.

Cut Back On Spending

This goes without saying, but in order to save a decent amount of money every month, you'll likely have to make some small sacrifices in terms of how much money you spend every month on non-essential things.

READ: How Does Toronto Real Estate Stack Up To Other Investments?

Accept Monetary Gifts From Your Parents

Many young adults are being helped out by their parents when it comes to saving for a down payment. That said, any monetary gifts from parents must follow a specific paper trail to prove that the funds are a gift to be used towards a down payment and not a loan that needs to be paid back.

A down payment is probably the single largest savings you'll ever make. And going solo with this endeavour can make it an even tougher challenge. Make sure to focus on homes that are more within your price range, work with a mortgage broker who can help you determine what type of down payment amount you should be working towards saving, and adopt any one of the above-mentioned tips to help you start accumulating funds needed to get that mortgage.

Personal Finance