Minimum Down Payment For Home Buyers To Increase, Effective February 2016

Late in 2015, Finance Minister Bill Morneau announced changes to down payment requirements. Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from five per cent to 10 per cent for the portion of the house price above $500,000. The five per cent minimum down payment for properties up to $500,000 remains unchanged.
Mortgage Professionals Canada Chief Economist, Will Dunning, is reviewing the full impact of this down payment increase – in particular, on first-time buyers. We will provide further analysis as it becomes available.
In Canadian Mortgage Trend's Fall Report, Dunning discusses why raising the down payment could cause problems for the housing market, including this cautionary observation: “Rising prices have made it increasingly difficult for first-time homebuyers to accumulate down payments. Increasing down payment requirements would, most likely, severely dampen housing demands from people who are financially well-qualified to make their monthly mortgage payments.” It is disappointing, that this decision was taken without any formal industry consultation.
With that being said, I am releaved that this is an approach to cooling the housing marketing at least sort of makes sense since the biggest cooling effects should be seen in the two markets that actually need to be cooled down, the GTA and Vancouver. As for the rest of Canada, with the 10% only being required on any amounts over $500K, I don't think it will cause too many problems considering the average price of homes sold in October 2015 through the Canadian Real Estate Association’s Multiple Listing Service® (MLS) system was about $453,000. It's also important to consider that this is merely an addition to a graduating system for downpayment requirements since any home purchases with prices over $1,000,000 have required a minimum down payment of 20% for quite some time now.

Here's an example of how the new down payment requirement would work:

Let's say you're going to be purchasing a home with a price of $600,000. Your down payment will only be an extra $5K more after February 15th, 2016 (5% on $500K: $25K + 10% on the portion about $500K: $10K = a total of a $35,000 down payment vs. 5% on $600k= a $30,000 down payment). So it would really only work out to a DP requirement of 5.8%. See the chart below.
Overall, I don't think this news is too bad. In fact, it might be exactly what the Canadian housing market needs.

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