CMHC Increases Down Payment Requirements For Insured Mortgages

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.