In a previous post I outlined the broad strokes of the reason for the change. As the deadline creeps closer (Feb.15) I figured it was time for a refresh.
Currently the minimum down payment for all home buyers when purchasing a home under $1,000,000 is 5%. All mortgages that are less than 20% down are required to have High Ratio Insurance.This is mandated protection for the lenders when providing a mortgage greater than 80% of the home’s value. This all changes effective February 15th, required down payment on homes valued over $500,000 will rise to 10% from 5% on the amount over $500,000.
So, what does this mean? Once the new rules are implemented, someone looking to purchase a $750,000 home would be required to have a down payment of at least $50,000. Example: Based on the $750,000 purchase price the calculation would be as follows: 5% of $500,000 = $25,000 and 10% of the remaining $250,000 = $25,000 for a total of $50,000.
Down payment rules for mortgages on properties selling at $500,000 or less will be unchanged.
The new rules represent the greatest change to the housing finance market since 2012. However, unlike past changes that have been aimed at the entire Canadian housing sector, the Liberal government indicated the new rules, which affect higher-priced properties, are mainly targeted at the most expensive markets. The Department of Finance has provided information on the upcoming changes in these FAQs on their website.
If you have been on the fence about investing in a new home, now may be the time to move forward. Qualified borrowers who get approved before February 15, 2016, can still buy with only 5% down.