New CMHC Down Payment Rules

CMHC recently announced some changes in down payment requirements for homes purchased above $500,000. CMHC insurance is only required for high-ratio loans, or mortgages where the buyer is putting up less than 20% of the total cost. So, if you have 20% or more down, then this really doesn’t apply. Or, if you are buying a house that is less than $500K, again, there is no change.

So what has changed? Previously, CMHC required a buyer to have a minimum of 5% down payment. If you had less than 5%, then you didn’t qualify, which meant you couldn’t get a mortgage. Now, they have said that buyers are required to have 5% of the first $500K, and 10% of any amount over $500K. Some home buyers have gotten this a bit confused, and think it means that you now need a 10% down payment if you are buying a house over $500K. But, the 10% only applies to the portion over $500K. 

Here’s an example of how this will work on a $600K home:

  • Previously, a buyer needed 5% of $600,000 = $30,000 down payment
  • Now, a buyer needs:
    • 5% of the first $500,000 = $25,000, plus
    • 10% of the next $100,000 = $10,000
    • Total of $25,000 + $10,000 = $35,000 down payment

So, you can see that the impact is less than you might imagine. In the example, a buyer used to need 5% down, or $30,000. They now need a bit more at 5.8%, or $35,000. As the purchase price goes up, so does the impact, since the 10% is applied to a higher $ amount. Whereas a $900,000 home could have been purchased with $45,000 down, a buyer would now need $65,000. The new rules are scheduled to take effect February 2016.

How will this affect our Saskatoon Real Estate Market? We think the impact will be minimal. In our market, most buyers with 5% down tend to be shopping under $500,000. With an average sale price of around $350,000, this doesn’t come close to impacting most buyers. Those looking in higher price ranges, tend to have more than 5% down. We think the impact will be greater in higher priced markets like Toronto and Vancouver.  And, it seems like this was designed with those markets in mind. Here’s a link to a CBC article on this change:

http://www.cbc.ca/news/politics/morneau-home-ownership-finance-1.3360610

If you have any questions on this, or the Saskatoon market in general, then contact Matt Miller, Associate Broker, at 306-260-4720 (mattmiller@royallepage.ca). We would love to hear from you!

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Category: Buying, Saskatoon Real Estate Market, Selling, Uncategorized