New Down Payment Rules for Homes Over $500k

Homes Over $500k will require more than a 5% down payment

It was announced this morning that the new Federal Liberal government in Canada will introduce higher down payment requirements for insured mortgages on homes that sell for more than $500,000.

Your Questions Answered:

Do I Need to Put 10% Down on a Home Worth >$500k?

No. You need to put 10% down on the value of the home over and above $500k. The first $500k only requires a 5% down payment.

This means, for example:

$600k home. 5% down payment on first $500k + 10% on next $100k = $25k + $10k = $35,000 down payment, which is 5.8% of $600k.

On an $800,000 home, it would look like this: $25k + $30k = $55k down on $800k, or 6.875% down. The new minimum of $55k on this home will cost you $15k more than the previous minimum of $40k.

This essentially tops out just below 7.5% as a minimum down payment on a home worth $999,999.99. At a million dollars or more the minimum down payment remains 20%.

Why Are They Doing This?

1. To try to take some steam out of the Toronto and Vancouver markets without beating up housing markets in the rest of the country.
2. To temper the impact of extremely low interest rates on home prices and protect Canadians agains possible asset devaluation in the future as rates rise.

Who Will This Impact?

• People who buy a home worth more than $500k
• People who SELL a home worth more than $500k. Remember: if it's harder to buy a home then it's also harder to sell that same home.
• Mortgage lenders, brokers, and insurers, who all have to come up with more rules, software changes, forms, and communication to keep us busy. It's ok, we love red tape.
• About 1% of the market overall, if you believe Finance Minister Bill Morneau.

“This will impact 1 per cent or less of the market. We think it does it in a very targeted way,” Morneau said.

Does This Change CMHC / Genworth / Canada Guaranty Premiums?

No, it shouldn't. To change the rate of premium you have to get to a full 10% down. As demonstrated above this change really tops out at about 7.5%.

When Does This Start?

February 15, 2016

Where Can I Learn More?

Globe And Mail - Liberals Move to Cool Hot Housing Markets...

Financial Post - Canada Tightens Mortgage Rules

What if I Have More Questions?

Call one of your friendly neighbourhood First Foundation Mortgage Brokers