Many will have read recent articles published by Canada’s major news outlets about Ottawa’s new mortgage lending rules, but it seems many are still uncertain of how they are actually impacted. Let us help with some clarification.
The new legislations are meant to take effect in February of 2016 and are, in the words of the new Liberal Finance Minister Bill Morneau, “a bid to target pockets of risk” in Canada’s housing market.
While the government announced a number of changes within the statements, there is one key piece that is of importance to the typical consumer and relates to the increased levels of down payment required to purchase a home. Now this is where there seems to be much confusion, and we hope to clarify.
Ottawa is now requiring a down payment of 10% for Mortgages above $500,000. This means that a mortgage from 0 – $500,000 is still attainable under previous rules at 5%. It is mortgages that fall between the $500,000 and $1,000,000 rage that will be impacted. Mortgages within this range now require a 10% down payment, but it should be noted that 10% is only required for the portion above the $500,000 level – meaning if you were to purchase a home for $600,000, the first $500,000 would require a 5% down payment and the remaining $100,000 would require a 10% down payment. Given this example you would only be required to contribute an extra $5,000 towards your down payment.
Mortgages above the $1,000,000 threshold remain unchanged and will still require at least 20% as a down payment. We work with clients in all neighbourhoods and price spectrums and don’t foresee these new rules having any grave consequences.
For a select few it will require some more savings for a mortgage down payment and in the short-term it may actually be a contributing factore to those sitting on the fence to take the plunge before the February 2016 deadline.
There were other announcements and impacts released by Ottawa but the remainder mostly impact institutional lenders and require them to hold more in reserve for high ratio loans – which seems to be a positive indicator that could strengthen our mortgage and financial sector. If you are interested, more information can be found in this concise CBC article:
* Please remember that for specific mortgage advice relating to your situation, you should always consult a certified mortgage specialist. We work with some great mortgage lenders and would be happy to give you a referral for specific questions or concerns.