Borrowed down payment: allowed, but not free
Planiprêt | 09 November 2026
Laurie had found a $400,000 condo. With a 5% down payment, she needed $20,000. She had $8,000 saved. “My bank is offering me a personal loan for the rest. That’s allowed, right?”
Yes, it’s allowed under certain conditions. But it isn’t free, and the cost goes beyond the interest on the personal loan.
What the insurers say
With less than 20% down, your mortgage has to be insured by CMHC, Sagen or Canada Guaranty. All three accept a borrowed down payment, which they call a “non-traditional” source, but only within a specific framework:
- The loan must come from a source with no connection to the transaction: a personal loan, a line of credit or a credit card, for example. The seller or builder can’t be the lender.
- The down payment is between 5% and 9.99%. In other words, the mortgage represents 90.01% to 95% of the property’s value.
- The property has one or two units, and you must live in it.
- Your credit history must be strong. Sagen sets a minimum of 600; CMHC and Canada Guaranty refer to a “strong credit profile” without publishing a number.
Don’t confuse the two
A non-repayable gift from a close family member is considered a traditional down payment. It’s not a loan, and different rules apply. We covered this in our article on gifted down payments.
First cost: a higher insurance premium
The mortgage loan insurance premium is higher when the down payment is borrowed. For a loan of 90.01% to 95%, the premium goes from 4.00% to 4.50% of the insured amount.
For Laurie, with a $380,000 mortgage:
- Premium with a traditional down payment: $15,200
- Premium with a borrowed down payment: $17,100
- Difference: $1,900, added to her mortgage, and she’ll pay interest on it for the entire amortization.
In Québec, you also have to account for the 9% tax on the premium, which is paid in cash at the notary’s office. It can’t be added to the mortgage. A higher premium therefore also means more cash needed at signing.
Second cost: your borrowing capacity
The personal loan payment is added to your other debts when calculating your total debt service ratio (TDS). For Laurie, a $12,000 loan repaid over five years meant about $240 a month. That amount reduces the room left for the mortgage by the same amount.
In her case, her ratios still passed, but just barely. Another borrower with a car loan or a credit card balance could see the purchase become impossible because of that one payment.
Third cost: two payments at once
After the purchase, Laurie will be repaying both her mortgage and her personal loan, usually at a higher rate than the mortgage. The first few years are often when the unexpected shows up: appliances, condo fees, small repairs. You need to make sure your budget works with both payments, not just on paper.
When it can make sense
Borrowing your down payment isn’t a bad decision in itself. It can make sense when:
- your income is stable and your ratios allow it with a comfortable margin;
- the borrowed amount is modest compared to your savings;
- you have a realistic plan to pay off the personal loan quickly;
- waiting until you’ve saved the full amount would cost you more, for example in rent.
Before borrowing, it’s also worth checking whether other sources are available, such as your FHSA or the HBP, which we covered in a previous article.
What we did for Laurie
We compared two scenarios: buying now with a borrowed down payment, or waiting about a year to finish saving. Factoring in the higher premium, the tax, the personal loan interest and the rent she’d keep paying, the difference was smaller than she thought. She made her choice knowing the real cost. Other avenues can be explored depending on your situation.
Questions to ask yourself
Do my ratios pass with the personal loan payment, and by how much?
What will the higher premium and the tax really cost me?
Can I handle the mortgage and the personal loan at the same time without stretching too thin?
Do I have access to other sources, such as the FHSA, the HBP or a family gift?
As mortgage brokers, we are neither accountants nor tax specialists. If you’re considering using your FHSA or the HBP, check the tax rules with the Canada Revenue Agency, Revenu Québec or a tax specialist.
Let’s talk it through together. As you probably already know, our services are free.
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