Finance minister tightens mortgage rules on homes over $500K

  • December 11, 2015

The federal government is boosting the minimum down payment for higher-priced homes in Canada effective in the new year.

Homebuyers are currently required to put down a minimum of five per cent to qualify for Canada Mortgage and Housing Corporation insurance — protection that lenders insist on when providing a mortgage worth more than 80 per cent of the home’s value.

Starting in February, CMHC will require a 10 per cent down payment on the portion of any mortgage it insures over $500,000. The five per cent rule remains the same for the portion up to $500,000.

“We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated,” Finance Minister Bill Morneau told reporters on Friday, “and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home.”

Once the new rules are implemented in 2016, someone looking to buy a $750,000 home would need to have a minimum down payment of $50,000, which is five per cent of $500,000, plus 10 per cent of the remaining $250,000.

Banks are forbidden to provide “high-ratio” mortgages — when the amount being borrowed is more than 80 per cent of the home’s purchase price — without taking out insurance for it.

Toronto, Vancouver home prices spiralling

The government-backed CMHC is by far the largest provider of mortgage insurance in Canada, and although it is the lender that is protected and pays the premiums, virtually all banks will pass these premiums on to borrowers.

Homes priced at more than $1 million by law require a minimum down payment of 20 per cent, and therefore the CMHC guarantee doesn’t apply.

Several consecutive years of record-low interest rates have enticed new buyers into the housing market.

According to the Canadian Real Estate Association, average home prices in Toronto are now more than $630,000 — a 7.5 per cent increase over last year. In Vancouver, the average is now close to $1 million — rising by more than 15 per cent in the last year alone.

Morneau denies his government is concerned about a housing bubble.

“We are not fearing anything in particular,” he said. “What we are doing is trying make sure we look at areas of the market that present potential risks.”