The Ins and Outs of the New 10% Down Payment

Pros and Cons of the New 10% Down Payment

If you are considering buying a house in Canada in 2016, you may need to put down more than you thought you would. As of February 15, 2016, a new rule will come into effect with regard to mortgages backed by the government.

If you’re buying a house for $500,000 or less, you will still only need a minimum 5% down payment. However, if you want a house over $500,000, you will have to put down 10% on the portion over $500,000. So here is a chart that shows you how it works:

 

Minimum Down Payment by Home Purchase Price:
Existing vs New Rules

 

Existing Eligibility Rules

New Eligibility Rules Effective Feb.15,2016

Home Purchase Price

Minimum Down Payment % age

Minimum Down Payment Amount ($)

Minimum Down Payment % age

Minimum Down Payment Amount ($)

$500,000 and below

5.0%

Up to $25,000

5.0%

Up to $25,000

$600,000

5.0%

$30,000

5.8%

$35,000

$700,000

5.0%

$35,000

6.4%

$45,000

$800,000

5.0%

$40,000

6.9%

$55,000

$900,000

5.0%

$45,000

7.2%

$65,000

$999,999

5.0%

$50,000

7.5%

$75,000

$1,000,000 and above

20%

$200,000 and up

20%

$200,000 and up

According to Alyssa Richards, the CEO of RateHub.ca, the purpose of this is to try and put a damper on some of the more active housing markets in Vancouver and Toronto. Unfortunately, this is most likely to have an effect on people buying a home for the first time. An average home buyer in Toronto will now need about $6,600 more on hand to buy a house than they would have according to this rule, as the average home price in Toronto as of November 2015 was $632,685. In greater Vancouver, buyers would need an average down payment of $50,250, up from about $38,000, as a result of this rule, because that average price is $752,500.

So if you live in one of these pricier markets but aren’t in the closing phases of a mortgage right now, there are three choices that you have, assuming that you won’t have enough extra in savings to make the additional contribution to that down payment:

  • Set your sights on a less expensive home than what you had in mind
  • Put off the home purchase until you save the extra money

Angle you way into secondary funding, either from friends and relatives or from a private loan to augment the primary mortgage

This is just the latest in a series of attempts that CMHC has taken to bring more regulation to the housing market in Canada. They have increased their premiums on mortgage default insurance twice since the end of 2013, and they have upped the down payment for homes worth over $1 million to 20 percent. People who want to buy homes to use for rental income also have to put down 20 percent. However, those changes have failed to stop the rise of prices in these two booming housing markets.

Interested in pursuing your options for a home purchase in 2016? Talk to one of our mortgage specialists at Amansad Financial to get a personalized recommendation for your own situation.

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