New CMHC Guidelines Requiring a larger down payment go into effect February 15th.
If you’ve been following the mortgage news over the 2015 year, you would notice a trend… CMHC warning of overvaluation of homes in regions of Canada.
Of those regions, it was no surprise the two largest metropolitan cities Vancouver and Toronto were on that list. The concern is regarding the smaller cities such as Saskatoon, Winnipeg, Saskatoon and Regina, Montreal and Ottawa. Of the two Albertan cities, Edmonton and Calgary has also landed on that list. So, our housing market had lead the government to take action.
Early December last year Finance Minister Bill Morneau announced changes to the rules for CMHC insured mortgage. Coming to effect February 15, 2016, the minimum down payment for new insured mortgages will increase from 5 percent to 10 percent for the portion of the house price above $500,000.The 5 percent minimum down payment requirement for properties less than $500,000 remains unchanged. Canadians who already hold mortgages will not be affected by this announcement.
Morneau states this action will “address emerging vulnerabilities in certain housing market, while not overburdening other regions… promote long-term stability and balanced economic growth
Here is a comparative to illustrate how this change will affect someone buying a high end home.
Scenario 1: Buying $700,000 home today
Purchase price: $700,000
Minimum 5% down payment: $35,000
Mortgage loan: $700,000 - $35,000 = $665,000
CMHC premium 3.6% of mortgage loan = $665,000 x 0.036 = $23,940
Scenario 2. Buying a $700,000 home after Feb 15
Purchase price: $700,000
Minimum 5% down payment for $500,000 = $25,000
Minimum 10% down payment for portion above of $200,000 = $20,000
Minimum down payment total = $25,000 + $20,000 = $45,000
Mortgage loan: $700,000 - $45,000 = $655,000
CMHC premium 3.6% of mortgage loan = $655,000 x 0.036 = $23,580
In this scenario the potential buyer will need an additional $10,000 down payment in order to purchase a home priced at $700,000.
Overall, some argue this change will have minimal affect on the housing market as average home prices in Edmonton is $339,714 - REALTORS® Association of Edmonton. Whereas, some are more skeptical and argue these changes will only negatively affect our already weakening housing market.
We can only wait and see!
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