New Down Payment Rules are in Effect
A few months ago new mortgage rules were announced that finally came into effect last week which is something that Buyers will need to be aware of with regards to their down payment.
For Buyers looking to buy a home priced between $500,000 and $1-million, you will need additional down payment funds. The new mortgage rule breaks down as follows:
For properties priced up to $500,000: Minimum Down Payment of 5%
For properties priced between $500,000 and $1-million: Minimum down payment of 5% on the first $500,000 and a minimum of 10% on the portion of the price between $500,000 and $1-million
For properties priced over $1-million: Minimum down payment of 20%
For example, say you want to buy a property priced at $738,000. The minimum down payment required is:
5% on $500,000 = $25,000
10% on $238,000 = $23,800
Total Minimum Down Payment = $48,800
This is $11,900 more than the previous 5% minimum down payment rules
Though this change was put into effect to slow the real estate market, it’s also to ensure that Buyers are slightly more prepared when it comes to home ownership. Based on my experience, most Buyers have far more than the minimum 5% down payment so this change won’t have a big effect on the market, but it will ensure that Buyers are thinking twice before overextending themselves to afford a more expensive property.
Keep in mind that every down payment under 20% of the total purchase price requires CMHC (Canada Mortgage and Housing Corporation) insurance, which is a fee added to your monthly mortgage payments.
At this point, interest rates are still very low so if you’re looking to grab the first rung of the property ladder, talk to a mortgage broker about what you can afford given your current and future plans. The mortgage brokers we work with are hard working, educated and will ensure you know what you’re getting into.