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Increase in Down Payment for Canadian Mortgages

Posted by Ryan MacDonald on Monday, January 4th, 2016 at 3:03pm.

2016 New Year's Resolutions from Finance Minister Bill Morneau

2016 Down payment increaseIf you're looking to purchase a home over $500,000 after February 15, 2016, you may want to start socking away more for your down payment.

In an effort to stabilize the Canadian housing market, Finance Minister Bill Morneau will be doubling the down payment required on homes priced from $500,000 to $999,999. Normally, a home or condo priced under $500,000 requires a minimum 5% down payment. With the new regulations, any portion above $500,000 will now require a minimum 10% down payment. Currently homes over $1 million already have a 20% minimum down payment requirement, which will remain as is.

To put this in perspective, if you buy a Calgary home or condo priced at $750,000, you will need a minimum $50,000 down payment. 5% of $500,000 and 10% of the remaining $250,000. The Minister is saying this should impact about 1% of the market, depending on the province, and shouldn't effect first time buyers. We should see this effecting the upscale market here, but buyers who can afford the luxury home market in Calgary probably won't be deterred by the increase.

Three-Prong Approach to Tackle Consumer Debt

The objective of this new regulation is to deter buyers from extending themselves into a higher market that they really can't afford to be in. It will also help to ensure that homeowners have reasonable equity in their home. To achieve this, the Canada Mortgage and Housing Corp. will also be imposing the following changes:

Financial institutions and lenders will have stiffer capital requirements for insured mortgages. 

Limits for government insured mortgage backed securities program will increase substantially, but if lenders go over their annual allotment, the fees will also increase.

During this Golden Age of low interest rates, consumer debt still remains very high. A study by three Bank of Canada economists showed that about 8% of households are carrying debt that is 350% or more of their gross income. Instead of taking advantage of the favourable rates to pay off outstanding credit cards, consumers have used them get loans on more expensive houses. Bank of Canada is concerned that when rates do eventually rise, Canadians will be at risk of becoming over-extended.

 

Ryan MacDonald, B.Sc. Real Estate Professional

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