The federal government of Canada is aiming minimum down payment for expensive homes in Canada which is to be made effective in the coming New Year.
Mortgage Rules to be tightened in Canada.
People intending to purchase homes are presently required to make a down payment of a minimum of 5% to qualify for Mortgage and Housing Corporation insurance. This will tend to protect them from those lenders who insist to put down while providing a mortgage worth not less than 80% of the value of the home.
From February onwards, CMHC will require a 10% down payment in case of any mortgage. This will insure the homes having value over $500,000.
However, the five % rule remains the same in cases of the value of the home up to $500,000.
Finance Minister Bill Morneau announced before the reporters that in the Toronto and Vancouver markets it has been observed that house prices have been increased. He further declared that the government wants to ensure that they create an environment which would protect the people purchasing homes so they have enough equity in their home.
After the implementation of the new rules in 2016, one who looks forward to purchase a home worth $750,000 would require having a minimum down payment of $50,000, which is what we get by adding 5% of $500,000 and 10 % of the remaining $250,000.
Banks are directed not to provide “high-ratio” mortgages:
When the amount being borrowed for purchasing a home is more than 80% of its purchase price, Banks have been directed not to provide “high-ratio” mortgages without taking out insurance for it.
The government-backed CMHC is currently the largest provider of mortgage insurance in Canada, and though it is the lender who is to be protected as he pays the premiums, practically all banks pass the premiums to the borrowers.
Cases where the rule is not applicable:
Homes having prices worth more than $1 million, is now required to pay a minimum down payment of 20% as such, the CMHC rule does not apply to them.
It has been observed recently that the record-low interest rates in the consecutive years have encouraged new buyers to enter into the housing market.
According to the statistics of the Canadian Real Estate Association, average home prices in Toronto are presently more than $630,000 which indicates more than 7% increase over last year.
In Vancouver, the average is nearly $1 million which indicates a hike of more than 15 % in the last year.
New mortgage rules debated:
However, Mortgage Professionals in Canada who are working on behalf of the industry believe the new rule will decrease the sale of houses which is the reason why they have opposed the change.