On December 11th, 2015, the Liberal Government made some significant changes to what is required in obtaining a mortgage in the housing industry.
One of the most noteworthy changes is the amount needed for a downpayment to qualify for government-backed insurance. Canada Mortgage and Housing Corporations (CMHC) will, starting on February 15, 2016, require a 10% downpayment on a portion of a home’s sale price if the total purchase is in between $500,000 and $1million.
Although this change appears significant on paper, it is a 50% increase from the previously required rate of 5%, Finance Minister Bill Morneau stated in a press conference that he expects this change to affect only 1% of the market or less.
With such a small portion of the market being affected, why the change? Tamsin McMahon of the Globe and Mail stated that, “Unlike past changes that have been aimed at the entire Canadian housing sector,…the new rules, which affect higher-priced properties, are mainly targeted at the most expensive markets, particularly Toronto and Vancouver”. The hope is that, “this will create stability for the overall market by targeting pockets of risk” Morneau stated in Ottawa. The other benefit to a higher required downpayment percentage is that it will help Canadians “take the right approach” when they invest in a home.
For those who are considering investing less than 500,000 in a home purchase the downpayment requirements will stay the same at 5%. Homes priced over $1million will also stay consistent in their minimum downpayment requirements of at least 20%.
If you’re considering purchasing home between $500,000 and $1million in the near future Steve Heubl, of canadianmortagetrends.com says that the change of rules to the Canadian mortgage industry could have been much worse. The new rules may just mean you have to save a little longer to afford the downpayment towards the home you want.