Toronto, Canada, December 18, 2015 — Braden White (www.BradenWhite.com), a real estate sales representative of Chestnut Park Real Estate Ltd., one of Toronto’s leading luxury real estate brokerages, is evaluating the announced increase in minimum down payments for mortgages that will be put in place in 2016. The rule change affects how much money needs to be put down when trying to qualify for mortgage insurance from the Canada Mortgage and Housing Corporation (CMHC). The CMHC is the largest provider of mortgage insurance in the country.
Technically the increase in the minimum down payment—which will go from 5% to 10% for mortgages over $500,000—only affects the insurance payments between banks and CMHC. However, banks have traditionally passed premium increases on to borrowers, which has led people to believe this change will be no different.
Since the increased rate will only affect the amount of the mortgage that is over $500,000, the down payment on a $750,000 home under this rule would become $50,000. That breaks down to 5% of $500,000 plus the 10% on the leftover $250,000. Houses priced at over $1 million will be unaffected by the change since they already require a mandatory 20% down payment. (Source: “Bill Morneau tightens mortgage rules on homes over $500K,” cbc.ca, December 11, 2015; https://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610.)
“The change is not being made to help lower the nation’s housing prices directly. Instead it appears to be targeted towards people in certain cities who are trying to enter the housing market with low initial equity,” Braden White explains.
Whether the rate increase will have this desired effect is going to take time to assess. The higher rates are to begin in February of 2016. In the meantime, January housing sales are expected to see a temporary jump as people scramble to make purchases before the higher down payments kick in.
“In actuality, this change is telling first-time homebuyers that they need to build up more savings or put more money down before they enter the real estate market,” White concludes.
Braden White is a licensed real estate sales representative with Chestnut Park Real Estate Ltd., one of Toronto’s leading luxury real estate brokerages and an exclusive affiliate of Christie’s International Real Estate in Toronto. He is a committed advocate for his clients and has extensive knowledge of the ins and outs of buying, selling, and leasing properties across Toronto. More information can be found at www.BradenWhite.com.