On signing day, it's tempting to put everything into the house: the biggest possible down payment, new furniture, a few renovations. That's understandable, but it's also when you're most vulnerable. An emergency fund is what lets a homeowner get through the unexpected without a credit card and without the stress.
Why an emergency fund matters even more once you own
As a tenant, a broken water heater is the landlord's problem. As an owner, it's yours. Three situations come up often:
- A loss of income. Layoff, sick leave, a contract that isn't renewed: the mortgage payment keeps coming every month.
- A major repair. Roof, foundation, water infiltration, an appliance that gives out. Houses don't tell you in advance.
- Mortgage renewal. At the end of the term, your rate may be higher than when you bought, and your payment may go up. A cushion gives you time to adjust your budget.
In a condo, add the possibility of a special assessment if the syndicate's contingency fund is insufficient.
How much should you keep aside?
There's no official figure. The most common recommendation is to keep 3 to 6 months of essential expenses: mortgage payment, taxes, insurance, electricity and heating, groceries, transportation, debt payments. Aim for the top of the range if your income is variable, if you're self-employed or if the household relies on a single income.
To do the math, start from your actual budget after the purchase, not your current rent: the mortgage payment, property taxes and home insurance replace rent, and heating or electricity can cost more in a house than in an apartment. Then multiply that monthly total by the number of months you're aiming for. If the target seems out of reach at first, build it up gradually with an automatic transfer every payday.
Alongside this emergency fund, set aside a maintenance allowance. A common rule of thumb suggests about 1% of the property's value per year: for a $400,000 property, that's about $4,000 a year. These aren't surprises — they're certain expenses where only the timing is unknown. For a list of start-up expenses, see the costs of the first 12 months.
Where to keep this money
An emergency fund needs to be liquid: available within a few days, with no penalty and no risk of a loss at the wrong moment. A savings account separate from your chequing account is often enough, and keeping it separate stops you from nibbling away at it without noticing.
Some people keep their reserve in a TFSA, choosing low-risk investments that are easy to cash out. What matters is not putting this money in a locked-in or volatile product. For a choice suited to your situation, talk to an advisor.
Why not put everything into the down payment
A bigger down payment reduces the loan, the interest and, below 20%, the mortgage loan insurance premium. But money put into the house is no longer accessible: to get it back, you'd have to borrow again or sell.
The mortgage loan insurance premium depends on your down payment: 4% of the loan from 5% to under 10%, 3.1% from 10% to under 15%, and 2.8% from 15% to under 20%. Moving up a tier does save money, but you need to weigh that saving against the security of keeping cash on hand.
| Hypothetical example — $400,000 property | 5% down payment | 10% down payment |
|---|---|---|
| Down payment | $20,000 | $40,000 |
| Loan amount | $380,000 | $360,000 |
| Mortgage insurance premium rate | 4% | 3.1% |
| Premium added to the loan | $15,200 | $11,160 |
In this example, putting $20,000 more into the down payment reduces the premium by about $4,040. That's a real saving, but if that $20,000 was your only reserve, you'd have no safety net the day the water heater gives out. There's no one-size-fits-all answer: it all depends on how stable your income is and how much savings you'd have left. To run the numbers for your own situation, see the down payment calculation.
Not sure you have enough breathing room? Take the 10-question self-assessment.
Frequently asked questions
How much money should you keep aside after buying a house?
The common recommendation is to keep 3 to 6 months of essential expenses in an emergency fund, plus a maintenance allowance of about 1% of the property's value per year, according to a rule of thumb.
Is it better to have a bigger down payment or an emergency fund?
A bigger down payment reduces the loan and sometimes the mortgage insurance premium, but that money is no longer accessible. Weigh the savings against the security of keeping cash aside, and check it all with a professional.
Where should I keep my emergency fund?
Somewhere liquid and low-risk, such as a separate savings account or a conservatively invested TFSA, so you can access it quickly without a loss.
