As of February 15, 2016, the federal government will raise the minimum down payment requirement on homes valued over $500,000 that require insurance. The minimum down payment requirement will remain at 5 per cent for homes under 500,000. Any amount between $500,000 – $1,000,000 will require a 10 per cent down payment. Homes valued at $1 million+ require a minimum down payment of 20 per cent. Mortgage insurance is not available for homes in this price range.
For example, a $700,000 home will require a $45,000 down payment.
5% x $500,000 = $25,000
10% x $200,00 = $20,000
This new measure applies only to new insured mortgage loans. It does not apply to an existing mortgage or to home owners renewing insured mortgages.
Currently, home buyers with a down payment of less than 20 per cent must buy mortgage insurance.
Canada Mortgage and Housing Corporation (CMHC), a federal Crown corporation, Genworth Financial Mortgage Insurance Company Canada, and Canada Guaranty Mortgage Insurance Company provide mortgage insurance in Canada.
The new measure begins February 15 and applies to new mortgage loan applications received on February 15 or later. Mortgage insurance applications received between December 11, 2015 and February 15, 2016 that don’t meet the new measures must have a mortgage in place by July 1, 2016.
The government’s goal is to “contain risks in the housing market,” said Finance Minister Bill Morneau.
How will this affect the Metro Vancouver housing market?
“Anyone buying a home priced at $500,000 or more tends not to have a razor thin down payment,” said Cameron Muir, the BC Real Estate Association’s chief economist. “In all, there’s marginal impact on the market and generally this won’t affect first-time buyers even in our market since they typically don’t buy homes priced over $500,000.”
Between 2008 and 2012, the federal government implemented changes tightening eligibility rules for new insurable loans, including:
- Increasing the minimum down payment to 5 per cent;
- Decreasing the maximum amortization period to 25 years;
- Limiting the maximum insurable house price to below $1 million;
- Applying maximum debt service-to-income ratios; and,
- Applying a mortgage rate stress test for mortgages with terms of less than 5 years or variable rates