The newly-elected federal Liberal government is increasing the minimum down payment requirements for higher-priced homes in Canada. As of February 15, 2016, Canadian home buyers will see changes to the rules regarding government-backed mortgages.
Under current rules, Canadians with a down payment less than 20% of the purchase price are designated ‘high ratio mortgagees’. It was considered a high ratio because the ratio of what is owed (the mortgage) to the total value of the home is greater than 80%.
Currently home buyers are required to have a minimum down payment of five per cent of the total cost of the home in order to qualify for Canada Mortgage and Housing Corporation Insurance. Mortgage lenders insist on CMHC insurance when they are providing a mortgage of more than 80% of the homes values – or a high ratio mortgage.
What Will The New Mortgage Rules Look Like?
The 5% down rule remains the same for any mortgage less than $500,000. However, starting in February CHMC will require a 10 per cent down payment on the portion of any mortgage it insures over $500,000.
So, someone looking to buy a $700,000 home would need to have a minimum down payment of $45,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $250,000.
Besides the new down payment restrictions, the federal government introduced other lending restrictions and together, they represent the most sweeping changes to the housing market since 2012, when the Conservative government last moved to tighten mortgage lending requirements.
Last Mortgage Rules Update With Conservative Government
Under the Conservative government, the finance minister tightened mortgage rules four times between 2008 and 2012. Among the changes, the federal government:
- Required a minimum down payment of at least 5 per cent for a mortgage to qualify for government-backed insurance. Previously, borrowers could get CMHC insurance on mortgages with no money down.
- Scrapped government-backed mortgage insurance on home equity lines of credit.
- Dropped the maximum amortization for mortgages to 25 years from 40 years.
- Capped the maximum home price that could qualify for government-backed mortgage insurance at $1-million.
The CMHC known mostly for insuring mortages is Canada’s national housing agency. Their website states that it contributes to the stability of the housing market and financial system, provide support for Canadians in housing need and offer objective housing research and advice to Canadian governments, consumers and the housing industry.” CMHC consider prudent risk management, strong corporate government and transparency are cornerstones of its operations. In addition to their website, the CMHC is active on social media and has a newsletter.
Are you concerned that the new mortgage rules will affect you? Give me a call, I’d be happy to answer any of your questions.
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