Gifted Down Payments

Plus, Things You Need to Know About a Mortgage Gift Letter

You believe you are ready to own a home. You look around the market and realise you don't have enough money set aside for a down payment. Due to record-breaking home prices around the country, down payment requirements are higher than ever. Where can you get the money to make the needed down payment if you don't have enough money saved? Family is the best solution, and we are seeing gifts from family much more regularly these days.

A man and a woman are standing next to each other in a room.

Rising House Prices Hurt Prospective New Home Purchasers


Young Canadians have never been more pessimistic about their ability to afford a home in Canada. This is understandable, with house prices rising so much in recent years that the average Canadian house price is now greater than seven times the average household income. Add to this the current trend of rising interest rates, plus a mortgage stress test, and qualifying for a mortgage has never been more difficult. Unfortunately, for many people, this means they can’t afford to own a home, either because they don’t have enough money for a down payment or because their debt ratios are too high, or both. This forces some prospective home buyers to the sidelines, while others turn to Alt or private lenders that charge much higher rates and fees.



Family Help


There are several ways to get help from family if you are struggling to qualify for mortgage financing. Family members can act as co-signors or guarantors on the mortgage. This creates contractual obligations for them that last the duration of the mortgage. An increasingly common way for family to help is by providing a gift of money to help a borrower with the required down payment.


An elderly man and a young woman are hugging each other.

Gifted Down Payment


A gifted down payment is exactly what it sounds like: money given to a borrower to put toward their down payment. Lenders require the gift to be from a close family member, typically considered to a be a parent, grandparent, sibling, child, legal guardian, or spouse.


There are a few things to note about gifted down payments:


  1. The funds must truly be a gift. This means that you cannot be required to repay the funds. If the gifted funds are repayable then they are considered a debt of the person receiving the funds and this can make it more difficult to qualify for a mortgage;
  2. Since the funds are a gift, they are not taxable;
  3. Lenders will check to see that the gifted funds did indeed come from the giftor by checking their bank statements. They will also want to see the deposit into your bank account;
  4. The giftor will have to provide a mortgage gift letter.


Note that gifted down payment funds are not accepted for rental properties or cottages.


Mortgage Gift Letter


A mortgage gift letter is a standard form letter. Your lender will provide a template for you to use. A mortgage gift letter must state the following:


a.     The giftor’s name;

b.     Their relationship to the recipient;

c.     The amount being gifted;

d.     The source of funds;

e.     The date of the gift;

f.      A statement that says there is no obligation to repay the gifted funds; and

g.     The giftor’s signature



The lender will need this written assurance that the funds are not repayable.


A man and a woman are sitting back to back on the floor in a living room surrounded by cardboard boxes.

How Much Can be Gifted for a Mortgage Down Payment?


In Canada there is no cap on the amount that can be gifted. A recent report by CIBC showed that the average gift amount for first-time homebuyers in Canada rose to $82,000 in 2020. This compares to an average of $52,000 in 2015. These amounts were even larger in Canada’s biggest cities. CIBC estimated the gifted down payment average to be $130,000 in Toronto in the first three quarters of 2021 and $180,000 in Vancouver. As this shows, the gifted amounts can be substantial.


The key determinant of the gifted amount is the down payment required to get a mortgage. The minimum down payment for an insured mortgage is 5% of the home’s value. The minimum down payment for a conventional, uninsured mortgage is 20%. If you are a full-time, salaried employee, the entire amount of the down payment can be gifted. If you are self-employed you need to provide at least 5% yourself and the remaining 15%, or more, can be gifted. However, the minimum down payment requirement isn’t the only thing to consider when determining the size of a gift.


A gifted down payment can help you meet the down payment requirement, but you still need to have sufficient income to make the mortgage payments and a good credit score. Even with the minimum required down payment you may not pass the mortgage stress test. One of the key factors in the math of the stress test is the size of the mortgage. The larger the down payment, the smaller the mortgage. The smaller the mortgage, the better your chance to pass the mortgage stress test and qualify for a mortgage.


Get Your Best Mortgage at Frank Mortgage


If you unsure about the down payment requirements or are expecting to receive a gifted down payment amount, please connect with a mortgage expert at Frank Mortgage. We can help you through the mortgage process and find a solution that is best for you. We have advisors standing by to take your call at 1-888-850-1337, or you can go to www.frankmortgage.com to sign-up and we can help you online.

Best Mortgage Rates

Fixed
Variable
in

0.00 %

3 Year Fixed

Get Rates

0.00 %

5 Year Fixed

Get Rates
Check More Rates

About The Author

A man in a suit and striped shirt is smiling in a circle.

Don Scott

Don Scott is the founder of a challenger mortgage brokerage that is focused on improving access to mortgages. We can eliminate traditional biases and market restrictions through the use of technology to deliver a mortgage experience focused on the customer. Frankly, getting a mortgage doesn't have to be stressful.

Related Posts

A man in a suit is sitting at a desk with two people.

The Hidden Cost of 30-Year Amortizations in Canada: Will You Pay More in the Long Run?

July 4, 2025
Introduction: The Appeal of Lower Monthly Payments For many first-time homebuyers in Canada, the 30-year mortgage amortization option might seem the key to homeownership. It offers lower monthly payments , making homes more affordable, especially in high-demand markets like Toronto, Vancouver, and Calgary. But there's a catch that many Canadians don’t fully consider until much later. While your monthly mortgage bill may be manageable, the cost of a 30-year amortization often lies in the significant interest you'll pay over time. So, the big question is: Are you saving money or just spreading out the cost with a more long-term financial burden? What Is a 30-Year Mortgage Amortization? In Canada, most conventional mortgages default to a 25-year amortization. However, with a larger down payment or when using alternative lenders, a 30-year amortization becomes available. This extended term means lower monthly payments, but significantly higher interest paid over the life of the loan. Amortization is how your loan is structured to be repaid. With a 30-year amortization, each mortgage payment covers part of the principal and the interest . In the early years, much of your payment goes to interest. That’s where the cost sneaks in. Lower Monthly Payments… But at What Cost? A longer amortization makes the monthly payments seem more manageable. For example, someone buying a home for $700,000 with a 20% down payment would borrow $560,000 . Here’s a simplified comparison at a 4.5% fixed interest rate: 25-year amortization : $3,099/month → ~$370,000 in total interest 30-year amortization : $2,823/month → ~$458,000 in total interest That’s over $80,000 more in interest paid over the lifetime of the mortgage. And remember, rates in Canada tend to fluctuate. If you renew at higher rates after your term, the costs can climb even further. Real-Life Example: Meet Raj in Ontario Raj, a 32-year-old IT consultant in Mississauga, was excited to secure his first home. With housing prices high, he opted for a 30-year amortization to reduce his monthly costs. It seemed manageable—just over $3,000/month. However, his mortgage broker at Frank Mortgage showed him the numbers: with a 25-year amortization, his monthly payment would be $350 higher, but he would save more than $90,000 in interest . Raj chose the 25-year option and plans to make lump-sum prepayments when his income increases, taking advantage of the flexible prepayment options standard in Canadian mortgage terms. How Interest Adds Up: A Glimpse at Amortization Let’s break down how the interest piles up in the early years:
A man and woman are sitting at a table talking to a man in a suit.

Managing Uncertainty in Today’s Mortgage Market

By Don Scott • May 27, 2025
Feeling hesitant about entering the housing market today due to political or economic uncertainty is understandable. The landscape can seem unpredictable—interest rates shift, housing supply fluctuates, tariff news hits the headlines and policies change. As a mortgage broker, we see this uncertainty every day. But here’s the truth: while there is much beyond your control, mastering the factors that you can control is what will make the biggest difference in your journey to homeownership.

Navigating the 2025 Canadian Housing Market

By George Holicka • May 13, 2025
Better Times are Inevitable