When you are negotiating an Agreement of Purchase and Sale as a potential purchaser, the vendor (or the vendor's real estate agent) will ask you for a deposit.  This is a "good faith" amount of money that shows the vendor that you are in a financial position to be able to purchase their property.

The deposit is not a percentage of the purchase price and can be any amount, although it is usually between $1,000.00 and $10,000.00.  This amount is given as a cheque payable to the vendor's solicitor or the vendor's real estate agent, in trust.  The lawyer or agent will keep your deposit in a trust account on your behalf and, on the day of closing, you will be credited for this amount (in other words, this amount will be deducted from the purchase price, when calculating the amount you are required to give the vendor to purchase the property).

The downpayment is something different altogether.  The downpayment is a percentage of the purchase price.  If you are getting a CMHC-insured mortgage, you will be required to provide a downpayment of 5% of the purchase price of the property.  This is called a "high ratio mortgage".  You will obtain financing for the additional 95% of the purchase price, plus the CMHC high ratio mortgage insurance fee.  For example, if you are purchasing a property and the purchase price is $200,000.00, you will be required to provide a downpayment in the amount of $10,000.00* (5% of the purchase price).

If you have arranged a "regular" mortgage through a mortgage company (meaning that your mortgage is not CMHC-insured), you will be required to provide a downpayment of 25% of the purchase price of the property.  In this case, you will obtain mortgage financing for the remaining 75% of the purchase price.  In the above example of the $200,000.00 property, you would be required to come up with a downpayment of $50,000.00* (or 25% of the purchase price), and you would receive financing of $150,000.00, being the balance of the purchase price owing to the vendor after your downpayment.

Remember to calculate the deposit you have already given when arranging your financing.  If you are purchasing the above $200,000.00 property and you are arranging a CMHC-insured mortgage, you need to provide a $10,000.00* downpayment.  If you have already given a $5,000.00 deposit to the vendor's real estate agent, that money is considered to be part of your downpayment and it will be credited to you on closing.  On the day of closing, instead of having to provide the entire purchase price of $200,000.00 to the vendor, you now only have to provide $195,000.00*.  Since you have already given $5,000.00 as a deposit, the balance of your required downpayment is now $5,000.00*.  Your CMHC financing will provide the additional $190,000.00 of the purchase price, plus the CMHC insurance fee.

* These amounts are subject to the usual adjustments calculated as of the closing date.  Adjustments are for items such as purchase price, deposit, realty taxes, common expenses, rent and rental deposits, just to name a few.

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