Early this year, the federal government will be raising the minimum down payment for pricier homes in Canada.
According to Canada Mortgage and Housing Corporation (CMHC), to qualify for homeowner Mortgage Loan Insurance, one is typically required to give a down payment of at least five percent of the purchase price of a home. That may not be the case anymore starting February 2016. As stated in the company's website, changes to mortgage insurance considerations announced by the Government of Canada on December 11, 2015 will take effect on February 15, 2016.
What changes then are expected to take effect? According to CBC News, on the stated date of effectivity, CMHC will oblige a 10 per cent down payment on the portion in excess of $500,000 of any mortgage it covers while the 5 per cent rule will still hold true for the portion that is $500,000 or below.
With regards to this changes, Finance Minister Bill Morneau told reporters on Friday, "We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated, and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home."
Take a $600,000 home for example. The five percent of the first $500,000 is $25,000, then the ten percent of the exceeding $100,000 is $10,000. Therefore the minimum required down payment will be $25,000 plus $10,000 or $35,000 for a $600,000 home. Or for a $750,000 the minimum down payment will be $50,000, and a $700,000 the downpayment will be $45,000.
Before the governments required the changes, a $600000 home would only require a down payment of $30000 (five percent of $600000). How do you think will the Canadian housing real estate market be affected by this change.
