When putting a down payment on a house, often people strive for 20% if they can, and anything less is just a fallback if you don’t have the cash. If you have less than 20% down, your mortgage needs to be insured by the CMHC which will cost you between 2.8% and 4% extra.
However putting more money down also means you won’t have that money to invest. To calculate the optimum down payment given for a given property and investment return (opportunity cost), just use this calculator.
Here’s how it works: To compare the result of different down payments, it assumes that you can afford the highest monthly payment (for the lower down payment) and have the cash for the higher down payment. Then it compares your net worth after the given time period by taking your investment value and subtracting the mortgage balance.
You will notice that the outcome could change depending on the time period you are comparing. For example, if you put the minimum down and want to be ahead after 5 years, you would have to earn about 5% more in your investments than you are paying on your mortgage to outweigh the 4% CMHC fees. But over 25 years, you only need to earn an extra 2% to make the minimum down payment worthwhile.
Here’s another example. With current fixed rates of about 2.8%, it makes sense to put 20% down if you earn less than 5% in your other investments. If you earn more than 5% (after tax), then it makes sense to put only the minimum down.