Starting February 15, 2016 the Canadian Mortgage and Housing Corporation (CMHC) will require a 10% down payment on the portion of any mortgage it insures over $500,000.
Here’s how the new mortgage rules in Canada apply to the purchase of a $750,000 home:
5% on the first $500,000 = $25,000
10% on the next $250,000 = $25,000
A down payment of $50,000 is now required to finance the home.
The new Canada mortgage down payment rules causes an increase of $12,500 in your down payment.
“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.”~ Bill Morneau, Finance Minister of Canada
Historically, Canadians are prudent borrowers – less than ½ percent of all mortgage holders with the country’s largest banks are ninety days in arrears. Canada’s banks are also careful lenders1. Did you know Canada’s banks are the soundest banks in the world for eight consecutive years, according to the World Economic Forum?
Previous changes to Canadian mortgage laws were to ensure prudent lending standards and to protect consumers against taking on unmanageable debt loads. In 2008, Canada was able to avoid housing market problems that our neighbors in the United States experienced.
The new mortgage rules in Canada that go into effect today are targeted at specific real estate markets – like the Vancouver real estate market where the average price of a home has increased by more than 15% in the last year alone, with the average detached home now selling close to $1 million 2.
What has caused housing prices to increase so rapidly? Factors such as restricted detached-home supply, demographic demand, low mortgage rates, and inflows of foreign wealth are all contributing to the rise in housing prices in Vancouver and Toronto.
Morneau says his government is not afraid of a housing bubble but instead is looking at areas of the market that present potential risks.
Over the last several years changes to Canadian mortgage laws ultimately mean larger down payments and shorter amortization periods. As a result, buyers may be forced to post-pone buying a home or buy a less expensive home.
For more information about getting approved for a mortgage to buy a home in hot real estate markets like Surrey, Langley, and White Rock BC, call or text Natasha Taylor at 778-316-4290 or send an email to ntaylor@sutton.com.
