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New down payment rules in February

 

New down payment rules in FebruaryReal Estate Image

On February 15, 2016, minimum down payment rules are changing in Canada – for homes worth more than $500,000. The change is straightforward: for any portion of the house price over $500,000, buyers will need to provide 10% down payment for an insured mortgage. The minimum down payment for the first $500,000 will remain unchanged at 5%.

How much difference could it make? Here’s a simple example:

Right now, you could get a mortgage for a $750,000 home with a down payment of $37,500: a simple 5% of $750,000. Once the new rules kick in next month, you’ll need $50,000 down payment for the same house: 5% for the first $500,000 ($25,000), plus 10% for the $250,000 over the limit (another $25,000).

The change was announced in mid-December by the new Liberal Finance Minister, Bill Morneau. While most Canadian homebuyers will be unaffected, the move is designed to protect Canadian homeowners by ensuring a stronger equity footing in their homes.

If there’s a house purchase in your future, let’s talk. You will need a mortgage approval before February 15 to qualify under the 5% rule, and your purchase must also close before July 1, 2016. Keep in mind that in the past with such changes, some lenders have implemented their response to new down payment rules before the deadline date.

Here is a handy chart that outlines the impact of the New Minimum Down payment Requirement

Purchase Price New Down payment Requirement Old Down payment Requirement of 5 percent
Up to & including $500,000 No change. 5% – up to $25,000 up to $25,000
$600,000 5.8% – $35,000 $30,000
$700,000 6.4% – $45,000 $35,000
$800,000 6.9% – $55,000 $40,000
$900,000 7.2% – $65,000 $45,000
$999,999 7.5% – $75,000 $50,000

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