Home buyers in Canada now face bigger down payment requirements for real estate above $500,000. The changes are intended to slow some of Canada’s heated realty markets.
Here are 5 things to know about the new real estate financing rules:
Put up more cash: Home buyers now have to put at least a downpayment of 10 per cent on the portion of the purchase price of a house over $500,000. For anyone buying a house for $700,000 — a common average list price in the cities of Vancouver and Toronto — that means the minimum down payment will increase to $45,000 from $35,000. Any home under $500,000 still requires only a down payment of five per cent. Homes that are priced for more than $1 million still require a 20 per cent downpayment for mortgage financing.
Who is affected: Primarily those buying a home in the cities of Toronto and Vancouver. First-time buyers in those cities will be affected since they will be required to put down larger downpayments to get into the real estate market. Those who are selling their houses in order to move up, especially in the few cities with hot real estate markets, likely won’t feel the same pain since they should have built up reasonable equity.
Market Impact: The overall influence that the new rules will have over home prices is expected to be minor. When Finance Minister Bill Morneau announced the changes in December 2015, he said they are expected to affect one per cent or less of the purchasers in the Canadian real estate market.
Real Estate Sales: Some analysts expected a surge in higher end real estate sales leading up to Monday’s changes, saying they would entice buyers who wanted to avoid making the bigger downpayments.
Previous Changes: Four rounds of changes were made to tighten eligibility rules for new insurable mortgages in the past 4 years. Among them: the minimum down payment was increased to five per cent (no more zero down), the maximum amortization period was reduced to 25 years( down from a high of 40, to 35, then to 30 before this change) and the maximum insurable house price was limited to below $1 million.