On December 11, 2015, new Finance Minister Bill Morneau announced new down payment rules for insured mortgages, set to take effect on February 15, 2016. From then on, a 5% down payment will be required on the first $500,000, and 10% down will be required on the next $500,000. Borrowers who qualify before February 15, may still be able to make only a 5% down payment. First time buyers will often be spared the additional down payment as they typically buy properties below the $500,000.00 threshold.
Since 2008, the Federal Government has made several changes to the rules for mortgages insured through CMHC and other private insurance providers. Mortgage insurance is required when borrowers make a down payment of less than 20% of the property value. Insurance is not available where the purchase price is greater than $ 1 million.
The changes include the following:
• The maximum amortization period has been reduced to 25 years from 40 years.
• Home buyers must have a down payment of at least five per cent of the home purchase price and starting February 15, 2016, home buyers must add a further 10 per cent to their down payment for the portion of the house price between $500,000 and $999,999. For non-owner occupied properties, a minimum down payment of at least 20 per cent is mandatory.
• Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.
The result of the new rules for larger down payments and shorter amortization periods, means that some people may not qualify for a mortgage when they would have been able to before February 15th.
Please contact us or your lender/broker if you have questions about these new rules