ARTICLE
25 February 2016

CMHC Increases Down Payment Requirements For Insured Mortgages

MR
McLennan Ross LLP

Contributor

McLennan Ross LLP is a well-established law firm committed to serving the legal needs of Albertans and Northerners for over a century. McLennan Ross is a full service law firm with over 100 lawyers located in Calgary, Edmonton and Yellowknife.
As of February 15, 2016, the Government of Canada has increased the minimum down payment required for higher-priced homes across the country.
Canada Real Estate and Construction

As of February 15, 2016, the Government of Canada has increased the minimum down payment required for higher-priced homes across the country.

For those consumers that were unable or unwilling to produce the mandatory 20% down payment for home purchases, Canada Mortgage and Housing Corporation ("CMHC"), provided mortgage loan insurance so that the lender was protected against loss if the borrower defaulted. CMHC historically required a minimum down payment of 5% to qualify for its insurance program.

Due to concerns over affordability, financial stability, and a potentially overheated housing market, CMHC will now require a 10% down payment on the portion of the mortgage it insures that is over $500,000. The 5% minimum will remain for the portion of the mortgage up to $500,000. Note that by law all properties over $1,000,000 require a minimum down payment of 20%, and therefore the CMHC rules do not apply to such purchases.

For example, if a consumer is looking to purchase a home for $650,000, CMHC will now require a down payment of $40,000 (i.e. $25,000 on the first $500,000 and $15,000 on the remaining $150,000). Whereas under the old rules a down payment of $32,500 would be required (i.e. 5% on the full $650,000).

It is expected that the new rules will have the most impact in overheated housing markets such as Toronto and Vancouver, but could have a significant impact in Calgary as well. The bottom line is that consumers looking to purchase homes over $500,000 may be forced to save up for a few more years before CMHC is able to insure such mortgages.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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