On December 11, 2015, Federal Finance Minister Bill Morneau announced changes today to the rules for government-backed mortgage insurance.

Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from 5 per cent to 10 per cent for the portion of the house price above $500,000. The 5 per cent minimum down payment for properties up to $500,000 remains unchanged. For example, on a $625,000 property (2015 average GTA price), Buyers will now require a minimum of 6% down, an additional $6,250.

The minimum down payment will increase gradually with the price of a house, varying from 5 per cent for homes priced at or below $500,000 to 7.5 per cent just below $1 million. Properties priced at $1 million and higher will continue to require a minimum down payment of 20 per cent. For example, a person buying a $600,000 property would be required to pay a down payment of 5 per cent on the first $500,000 and 10 per cent on the remaining $100,000, resulting in a total minimum down payment of $35,000, or 5.8 per cent of the total purchase price.

The announced measure will take effect on February 15, 2016 and apply to new mortgage loan applications received on February 15, 2016 or later. Any mortgage insurance application received between December 11, 2015 and before February 15, 2016 that does not conform to the measures announced today must have a mortgage in place by July 1, 2016.

This measure applies only to new insured mortgage loans. Homeowners with an existing insured mortgage or those renewing existing insured mortgages will not be affected by this policy change as mortgage insurance is good for the life of any existing insured mortgage.

The issue of an increase to minimum down payments is something CREA has effectively and successfully fought against since 2011. CREA has communicated concerns with today’s announcement to the government and will continue to advocate on this issue.

The Lang Team provides a Summary Breakdown of these changes:

The minimum down payment required to buy a home over $500,000 will increase.
It will be a tiered system with the first $500,000 requiring a 5% down payment, plus a 10% down payment for the portion above $500,000.

Sample Down Payment Required with New Regulation:
$500,000 Purchase = 5% down payment still allowed = $25,000 required
$750,000 Purchase = 5% on first $500K plus 10% on next $250,000 = $50,000 required
$999,999 Purchase = 5% on first $500K plus 10% on next $499,999 = $74,999 required
*as amended in previous Fed changes, anything $1M and over still requires a 20% down payment

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Sources: ctv.ca, The Lang Team, Royal LePage Real Estate Services Ltd.

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