Buying a house for more than $500K? Check your down payment

Minimum down payment increase - Ingrid Bjel McGaughey - Toronto Mortgage Broker

Minimum down payment increase – what you need to know

On February 15, 2016, the minimum down payment rules will be changing in Canada.  On homes purchased for more than $500,000, the portion of the house price over $500,000 will require at least a 10% down payment, rather than the current 5% down.  The minimum down payment for the first $500,000 will remain unchanged at 5%.

How much difference does 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, i.e. 5% of $750,000. Once the new rules take effect, you’ll need a $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).   So, if you were applying for a mortgage on this $750,000 property after February 15th, you’d need to come up with an additional $12,500 for your down payment.

Who will be affected by the minimum down payment increase?

Anyone who was counting on being able to make a 5% down payment on their new home, with a purchase price between $500,000 and $999,999 (for homes purchased for $1,000,000 or more, the minimum down payment has been 20% since July 2012). “Changes to mortgage regulations… appear aimed at cooling the Greater Vancouver and Greater Toronto housing markets,” according to Gregory Klump, CREA’s Chief Economist. “Minimum down payments will be going up for homes that sell for more than half a million dollars, so larger, more expensive housing markets will be affected most.” Although the move is designed to protect Canadian homeowners by ensuring a stronger equity position in their homes, there is no doubt that some buyers, especially first-time homebuyers in places like Toronto, “will be knocked out of the market temporarily”, according to the Globe and Mail’s Rob Carrick.

If there’s a house purchase in your future, let’s talk

You will need to have an accepted offer on a home AND get a mortgage approval before February 15th to qualify under the 5% rule, and your purchase must also close before July 1, 2016.  If you don’t buy by February 15th, you’ll have to do some mortgage planning to come up with more down payment funds.

Want a bit more mortgage planning info?

For more on planning for your down payment, click here.

To read about what NOT to do if you’re going to be applying for a mortgage soon, check out my top 5 tips here.

To see my thoughts on what first-time homebuyers – make that ALL homebuyers – deserve, take a look at my post on that here.

And please don’t hesitate to comment below, or get in touch with any questions or feedback.  I love hearing from my blog readers (this thing is a heck of a lot of work!).

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