Buying a House in Canada with Cash vs Getting a Mortgage

When purchasing a home in Canada you have many options – you can save as much as you choose and select the down payment you wish to make above the required minimum. You can pay cash, get a mortgage or opt for a happy medium between the two. Regardless of how you choose to pay for your home purchase, we’ve highlighted some of the pros for both options as well as addressed frequently asked questions to help simplify your decision.

Key Takeaways

• Being mortgage free isn’t always your best option – especially if you’re carrying other debt with a higher interest rate
• Having a mortgage enables you to access home equity more easily
• The number one benefit of paying for your home in cash is that you won’t be required to pay interest on an outstanding loan

Cash vs mortgage: choosing your payment

Many people dream of being mortgage free the moment they buy a home. And while this is a terrific goal to reach, it may not always be your best option to pay off your mortgage – especially when carrying other debt, since mortgage debt is considered good debt as your home value is typically appreciating and other debt often comes with a higher interest rate.

Important: The minimum down payment is 5% of the purchase price for a home valued at $500,000 or less and 10% for the portion of the purchase price above $500,000. If you put at least 20% down, you aren’t required to pay mortgage default insurance

Benefits of cash

The number one benefit of paying for your home in cash is that you won’t be required to pay interest on an outstanding loan. And, when it comes time to sell, there’s no mortgage balance to pay out.

Benefits of getting a mortgage

The main advantage for getting a mortgage is that mortgage interest rates are among the lowest out of all other forms of debt. That’s because a mortgage is considered secured debt – since you have collateral in the form of the property you own – versus unsecured debt for such things as credit cards and car loans.

Because mortgage debt is levied at a much lower interest rate, many homeowners take advantage of their home equity to make major purchases – such as completing home renovations, buying a second property, purchasing a car or sending their kids to school. See: Debt Consolidation in Canada | Using Home Equity to Save Interest

Tip: If you want to be able access some of your home equity for other purchases and costs, it makes sense to have a mortgage so you can get a home equity line of credit or refinance as needed

Cash vs mortgage: which is better?

The choice is a personal one and a lot of factors come into play as outlined above. The biggest consideration is whether it makes sense to owe nothing on your home but carry higher interest debt on other loans when it could save you more in the long run to have a mortgage.

It often makes more sense, however, to make as large of a down payment as possible to find a good balance between paying cash and holding a mortgage on your home. If you can put down at least 20%, you’ll save a significant amount of money by not having to pay for mortgage default insurance, which is required for all mortgages with a loan to value greater than 80%. See: Mortgage Default Insurance Calculator

Frequently Asked Questions