10% Down

10% Down for Buying Over $500,000 in Force

Another mortgage rule change has come into force. This one deals with the minimum down payment to buy a home. Prior to February 15, 2016 any home purchase under $1,000,000 could be purchased with a minimum down payment of 5%, provided default insurance of 3.6% was applied to the mortgage.

Here is what has changed:

  • On a purchase price of $500,000 or less, the minimum down payment continues at 5%, with a default insurance premium of 3.6% added to the mortgage.
  • On a purchase price more than $500,000, the minimum down requirement has changed:
     --5% down is required on the first $500,000 with the applicable default insurance of 3.6%, and
    --10% down is required on any portion above $500,000 with the applicable default insurance of 2.4%.

The mortgage payment is based on the mortgage amount plus the default insurance premium added to it.

Here is the impact of this rule change based on a before and after scenario if, as an example, one were to purchase a home of $650,000 with minimum down.

5% Down Before the Rule Change on $ below $1,000,000

Purchase Price

%

Down

 Amount
Down

Mortgage Amount

CMHC Ins. %

 

Ins. Amt

Mtg. + Ins.

$650,000

5%

$32,500

$617,500

3.60%

$22,230

$639,730

Mortgage Payment is based on this total:

   

$639,730

         

10% Down After the Rule Change on $ above $500,000 to $1,000,000

Purchase Price

% Down

Amount Down

Mortgage Amount

CMHC Ins. %

Ins. Amt

Mtg. + Ins.

$650,000

           

$500,000

5%

$25,000

$475,000

3.60%

$17,100

$492,100

$150,000

10%

$15,000

$135,000

2.40%

$3,240

$138,240

Mortgage Payment is based on this total:

   

$630,340

Why Another Restriction on Mortgages?
According to Finance Minister Bill Morneau, this new constraint has been enacted so that home buyers have “sufficient equity in their home”, and specifically in hot markets, such as Toronto and Vancouver, where prices are rising at elevated rates. So it is a targeted measure.

How Does this New Rule Affect the Local Market?

In our experience, generally those buying with a minimum down payment are first time buyers. As well, though lower and at times higher, many first time buyer purchases tend to fall in the range of $225,000 to $250,000, amounts that are very doable in our region. So the measure really has little if any real effect on us.   

 

 

For Listings in Niagara

Joseph Doyle

Joseph Doyle

Sales Representative
CENTURY 21 Today Realty Ltd., Brokerage*
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