New Mortgage Down Payment Rules Take Effect

Craig Sebastiano
by Craig Sebastiano February 15, 2016 / No Comments

Canadians now have to make larger down payments on homes that cost more than $500,000 and less than $1 million.

Effective today, the minimum down payment for insured mortgages will no longer be 5% except for properties that are $500,000 or less. For the first $500,000 of the home price, the current 5% minimum down payment will stay the same but there’s now a 10% minimum down payment on the portion of the price above $500,000. Canadians who currently have a mortgage won’t be affected.

For example, if you were to buy an $800,000 home, you’d need to make a down payment of 5% on the first $500,000 ($25,000) and 10% on the remaining $300,000 ($30,000) for a total of $55,000 or 6.9% of the total purchase price. Previously, you would’ve only had to put down $40,000.

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Old eligibility rules New eligibility rules
Home purchase price Minimum down payment percentage Minimum down payment amount Minimum down payment percentage Minimum down payment amount
$500,000 and below 5% up to $25,000 5% up to $25,000
$600,000 5% $30,000 5.8% $35,000
$700,000 5% $35,000 6.4% $45,000
$800,000 5% $40,000 6.9% $55,000
$900,000 5% $45,000 7.2% $65,000
$999,999 5% $50,000 7.5% $75,000
$1 million and above 20% $200,000 and up 20% $200,000 and up

The changes are aimed at trying to cool down the housing markets in Vancouver and Toronto. At the time the rule changes were announced in December, RBC Economics said there would “likely will have a non-trivial impact on high-priced markets.”

Earlier this week, a report from TD Economics predicted the changes could “dampen housing activity in the near term” but noted it won’t have as much of an impact as previous rule changes because Toronto and Vancouver are the only two markets in the country where the average priced home is in the $500,000 to $1 million range.

The bank says those waiting for a housing crash in either Vancouver or Toronto will likely be disappointed again this year. It believes both markets are probably benefiting from foreign investment and will remain strong or strengthen further due to the weak Canadian dollar, which makes housing cheaper for many foreign buyers.

Also, TD notes that workers from regions with rising unemployment rates appear to be moving to Ontario and British Columbia, which should keep demand for housing well supported. The report adds that the influx of people to Toronto “will help absorb what appears to be a rising inventory of homes for sale on the market and the market adjustments are expected to be modest.”

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Flickr: Joe Mabel