New mortgage insurance rules
take effect Feb 15th 2016.
It is not expected to have a big impact on the Ottawa real estate market, but it’s still good for buyers to be reminded of new federal rules on mortgage down payments that take effect Feb. 15 and will affect homes priced between $500,000 and $1 million.
If you are buying a home selling for between $500,000 and $1 million, you will have to pay a larger down payment to qualify for mortgage insurance than was required in the past. The new rules apply to new mortgage loan applications received on Feb. 15 or later. They do not affect loans that were approved before that date.
Back in December of last year, as I told my clients in a column that month, federal Finance Minister Bill Morneau announced new rules that the government said are intended to help promote longterm stability in the housing market and to help increase homeowners’ equity in their properties.
The high prices of homes in Toronto and Vancouver, where average prices are considerably higher than they are in Ottawa, played a part in the creation of the new rules.
At the time of the announcement, Bill Morneau said the new rules “prudently address emerging vulnerabilities in certain markets, while not overburdening other regions. They also rebalance government support for the housing sector to promote long-term stability and balanced economic growth. This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market over the long term.”
Under previous rules, homeowners were required to pay a minimum 5% down payment to qualify for Canada Mortgage and Housing Corporation insurance on their mortgage.
With the new rules, that 5 % minimum will remain the same if you are purchasing a property priced at up to $500,000.
In the Ottawa area, many buyers are looking for properties priced in that range, so those buyers will not be affected by the new rules. If you are purchasing a condo priced at $260,000, for example, you would be required to pay a minimum down payment of 5 per cent, or $13,000.
However, if you are buying a home priced above $500,000, the down payment for the portion of the price that is above $500,000 will increase from 5% to 10% under the new rules. That’s not 10% of the full price, just 10% of the amount that is above $500,000.
An example of how it works: If you are buying a home priced at $750,000, you would have to make a total down payment of $50,000 under the new rules.
That’s calculated this way: 5%of the first $500,000 of the price ($25,000), and then an additional 10% of the remaining $250,000 of your price, ($25,000), for a total of $50,000.
Under previous rules, a buyer could have made a down payment of 5%of the total price, or $37,500. So a house at this price would require an additional $12,500 for your down payment.
The federal government had already restricted its mortgage insurance to homes valued at less than $1 million. So if you are buying a home priced at $1 million and higher, the minimum down payment remains unchanged, at 20 %.
The good news for Ottawa buyers, and especially for first-time buyers, is that these rules will not have a big impact in our area. That’s because we are fortunate that average prices in Ottawa are much lower than they are in Toronto and Vancouver.
According to the Ottawa Real Estate Board, in its summary of sales for January of 2016, the average sales price of a residential class property in Ottawa that month was $386,839 _ well below the $500,000 price where the new down payment rules would apply.
Even better, the average sales price of a condo unit in Ottawa in January was $247,205. So buyers in Ottawa have a huge range of homes and condos to choose from at prices that will not be affected by the new rules.
Of the properties that sold in Ottawa in January, the Real Estate Board said the largest number were in the $300,000 to $400,000 price range, followed by properties in the $200,000 to $300,000 range. To give additional perspective, the Real Estate Board reported that in all of January, there were only six properties in the Ottawa area that sold for more than $1 million.
If you’d like to read more about the new mortgage rules, including frequently asked questions, there is helpful information on the Department of Finance Canada website, at http://www.fin.gc.ca/afc/faq/hdpmeh-mfperpc-eng.asp.
If you’re interested in buying or selling in the Ottawa area, I’d be happy to hear from you and chat about the Ottawa market. Even if you’re not planning to sell until the spring or summer months, it’s not too early to get in touch with me now, to get the process started and to prepare your property so that it is ready and in ideal condition for the busy selling season. It’s always less stressful when you can take time and don’t have to rush to take care of any details or small projects to get your home in top shape in advance of opening your doors to buyers.
You can reach me through my website, at www.nancybenson.com, or by calling me at 613-747-4747.