Today, the federal Finance Minister announced changes to the rules for government-backed mortgage insurance to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.
Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from 5% to 10% for the portion of the house price above $500,000. The 5% minimum down payment for properties up to $500,000 remains unchanged.
For example, a home costing $700,000 would require a $45,000 down payment – a 5% down payment on the first $500,000, added to a 10% down payment on the remaining $200,000.
Buyers shopping for homes below the $500,000 mark will be unaffected by the new rules.
The move is expected to take pressure off the Canada Mortgage and Housing Corporation (CMHC), which offers mortgage loan insurance for properties valued below $1 million.
Since the 2008 recession, the federal government has made it more challenging for Canadians to obtain CMHC-insured mortgages.
For homebuyers with a down payment of less than 20%, the government decreased the maximum amount of time allowed to pay off a mortgage to 25 years from 40 years.
The moves are intended to dissuade borrowers from making riskier purchases and instead encourage them to invest in less expensive homes.
- Federally regulated lenders are required to obtain mortgage insurance when the down payment is less than 20% of the purchase price of a property.
- Properties valued at $1 million and above require a minimum down payment of 20%.
The Office of the Superintendent of Financial Institutions has also announced today its plans to update regulatory capital requirements for residential mortgages to ensure that capital requirements keep pace with market developments and risks.
This single change may have the a significantly more serious effect on mortgage lending. Banks will undoubtedly scrutinize each mortgage applicant and application more thoroughly which will probably impact first-time buyers the most.