Its official. New Down Payment Rules are going into effect beginning on February 15th 2016. After years of debate, discussions and rumors about possible changes to the minimum down payment requirements in Canada, the Federal Government this morning announced what those changes will be. Their goal? To help protect the housing markets in Canada’s hottest real estate markets (Vancouver & Toronto) from potential market swings that would negatively impact a home owners’ equity stake in their home.
The new rules outlined this morning by Finance Minister Bill Morneau will mean an increase to down payment requirements for house hunters that are purchasing a home worth more than $500,000. A down payment of 10% will required for the portion of the property greater than $500,000. So here is how it will work:
For Home purchases equal to or less than $500,000 nothing will change. The minimum down payment will remain at 5% of the purchase price.
For Home Purchases greater than $500,000, here is how the change will impact you:
Assuming a purchase price of $700,000. A minimum down payment of 5% will be required on the first 500,000. Followed by a minimum 10% on the remaining amount:
5% Down Payment on $500,000 = $25,000
10% Down Payment on $200,000 = $20,000
Total Down Payment on $700,000 = $45,000
Under the previous down payment requirements the down payment would have been $35,000. The new rule changes have now resulted in an increase of $10,000 to the down payment for a purchase of $700,000 home.
While these changes will have a significant impact to house hunters in markets like Vancouver, Toronto and Calgary, the changes will have a much smaller impact on the Thunder Bay market given that our average sale price here is well below $500,000. There will be some house hunters that will be impacted in Thunder Bay by these changes; however, most of the house hunters in Thunder Bay above the $500,000 price point tend to be repeat buyers. With our strong real estate market these past few years, home owners have realized very modest gains in property values on their current home. When they sell their current home and use that equity for their next purchase, the new down payment measures will likely not hinder their next planned purchase. For first time home owners that are looking at a homes valued at more that $500,000, it will mean that they will need to plan for a larger down payment.
If you have been pre-approved for financing but have not yet purchased a home, we would suggest that you take a few minutes today to contact your Mortgage Specialist to see how these changes will impact your plans and pre-approval.
If you have any additional questions about how these changes will impact you personally, please feel free to contact our Team as we would be more than happy to help answer any questions you have.