New World Order On Down Payment

The new Finance Minister announced changes to the down payment rules we all knew were coming from last week’s blog post. Simply put, they are the lowest-hanging fruit for the Government to use in order to cool things. Let’s face it - things are out of control in Toronto specifically. If you’re a buyer or buying Realtor you know how insane things are. If you’re a listing agent, you know how insane things are. If you’re a lender or mortgage broker, you know how insane things are. So why not change things up a little bit to cool things off?

This is the sixth version of mortgage rule changes we have seen in the past 10 years and like the previous five, this one will do little to cool things. It will certainly help a little bit, especially on the higher-end, but it is the most gradual and relaxed rule change that could have been implemented. Imagine having to have 20% down on any priced home in the GTA? That would’ve really put a big bucket of ice on our market, kind of like the ALS ice-bucket challenge, except it would have meant not just getting wet but seeing your value of your property decrease. This minor rule change is meant at the higher-end, and it’s done in a very gradual stage that will really not impact things to a great deal.

For any property priced under the $500,000 mark you’ll still be able to buy with 5% down.

For any property over $500,000 you will need 10% down payment on the dollar amount that exceeds the $500K limit.

Example, $450K house is $22,500 down.

$650,000 house is:

5% of the first $500K, or $25,000, then 10% of the remaining $650K-$500K=$150K=$15K

Therefore you’d need $25K plus $15K or $40K.

Mix this with the promise from the Federal Government that we may see an increase in the RRSP rules to $35,000 withdrawal rather than $25,000 and I really don’t see much change.

What I am waiting to find out is: Will CMHC and Genworth allow borrowers to use a line of credit as part of the down payment? Currently you could buy with $0 down if you utilize your line of credit, and borrow at the same rates. Only time will tell.

Until mortgage rates change on the upside, I don’t think our market will be impacted that much. Sure, we may not see the repeat of 2015 which saw a banner year for sales (even amidst tight inventory levels) however being with 90% of that number still puts this market in very healthy levels.


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