New Mortgage Rules
December 14, 2015
The rules for down-payments are changing in 2016. The new mortgage rule is being applied in order to slow down current markets that are hot and already expensive while leaving other markets alone; for the most part!
The New Mortgage Rule:
Starting on February 15th, the new rule will apply to individuals who have a down payment of less than 20% and are looking to purchase a home for more than $500,000. If you have less than 20% for your down payment, you require mortgage default insurance. If you require mortgage default insurance the minimum down payment will rise to 10%. This is an increase from the previous 5% for the portion of a house price that exceeds $500,000.
The good new is that if you do want a house that exceeds $500,000 and if you already have a mortgage or if you have already applied for mortgage insurance before February 15th, these changes will not affect you!
This new rule only affects individuals looking at buying homes between $500,000 and a million dollars. Anyone buying a home over a million dollars is required, by law, to have a minimum down payment of 20% and thus, the Canada Mortgage and Housing Corporation insurance does not apply.
Once implemented, the new mortgage rules will be broken down as follows:
For example, an individual looking to buy a home for $600,000 will require a down payment of $35,000.
For the first $500,000 the 5% down payment applies, which equals $25,000 and the remaining $100,000 requires 10% down which equals $10,000 for a total of $35,000. (0.05 x $500,000) + (0.10 x $100,000) = $35,000 Previously, individuals would have required $30,000 for their downpayment.