Buying A Home? You May Need To Save For A Bigger Down Payment

Canada's Finance Minister, Bill Morneau, recently announced changes to the rules for government-backed mortgage insurance.

In the new year, home buyers may have to save up a little more for a down payment. The minimum down payment required to qualify for mortgage loan insurance will increase from five per cent to 10 per cent for the portion of the house priced above $500,000 but less than $1 million. For homes valued at $1 million or more buyers must still continue to have a minimum down payment of 20 per cent.

Canadians who already hold mortgages will not be affected by the new mortgage rules.

Mortgage loan insurance is typically required by lenders if you have less than 20 per cent saved up for your down payment. It is offered either through the Canada Mortgage and Housing Corporation (CMHC), which is a Crown corporation and backed by taxpayers, or through one of Canada's two private insurers, Genworth and Canada Guaranty.

What do the new mortgage rules mean in dollars and cents?

According to CREA's National Average Price Map, the average purchase price of a Canadian home in November was about $456,000. But, residents of Vancouver and Toronto can attest that homes in this price range are hard to come by.


In Toronto, the average price of a home is $632,000. In Vancouver, it's $930,000.

Toronto home prices and down payments

Old rules would require a Toronto home buyer to have at least $31,600 saved up if buying a home valued at $632,000. With the new rules, the same buyer would now need $25,000 (5% of $500,000) plus $13,200 (10% of $132,000) for a total down payment of $38,200.

Vancouver home prices and down payments

Old rules would require a Vancouver home buyer to have at least $46,500 saved up if buying a home valued at $930,000. With the new rules, the same buyer would now need $25,000 (5% of $500,000) plus $43,000 (10% of $430,000) for a total down payment of $68,000.

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Why the change in the mortgage rules?

"We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated," Finance Minister Bill Morneau told CBC reporters when the changes were first announced, "and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home."

When asked if he's concerned of a housing bubble, Morneau said the housing market, in general, is stable. "We're not talking about bubbles here," he said, according to CTV News. "We're talking about ensuring Canadians take the right approach in investing in a home."

The new regulations come into effect February 15, 2016, and some are predicting that house hunters may try to beat the deadline. But, in the rush, remember, that when it comes to mortgage rates, every percent counts. Shop around for the best mortgage rate today.

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