Frequently Asked Questions: Higher Down Payments for More Expensive Homes
What is this policy?
This policy increases the minimum down payment from 5 per cent to 10 per cent on the portion of the house price above $500,000. This policy does not change the 5 per cent minimum down payment for properties up to $500,000.
Why is the Government making this change at this time?
The Government continuously monitors the housing market and is prepared to implement policy measures to maintain a healthy, competitive and stable housing market. The new measure reduces housing market risks by increasing borrower equity. This protects the stability of the housing market and the economy as a whole, as well as the interests of taxpayers who ultimately back government-guaranteed mortgage insurance.
What will be the impact of the higher down payment requirement on the Canadian economy?
Higher homeowner equity will help maintain a stable and secure housing market and balanced economic growth over the long-term. In the short term, this targeted measure will dampen somewhat the pace of housing activity over the next year, as some prospective homebuyers save for the increased minimum down payment.
When does this measure take effect?
The announced measure will take effect on February 15, 2016.
I already have an insured mortgage. How will this change affect me?
This measure applies only to new insured mortgage loans. Homeowners with an existing insured mortgage or those renewing existing insured mortgages will not be affected by this policy change as mortgage insurance is good for the life of any existing insured mortgage.
I have already applied for mortgage insurance but my mortgage is not yet in place. How will this change affect me?
The announced measure will take effect on February 15, 2016 and apply to new mortgage loan applications received on February 15, 2016 or later. Any mortgage insurance application received between December 11, 2015 and before February 15, 2016 that does not conform to the measures announced today must have a mortgage in place by July 1, 2016.
How do higher minimum down payments for expensive properties relate to announcements made today by Canada Mortgage and Housing Corporation and the Office of the Superintendent of Financial Institutions?
Today Canada Mortgage and Housing Corporation (CMHC) announced increases to guarantee fees charged to lenders for CMHC-sponsored securitization programs, National Housing Act Mortgage Backed Securities and Canada Mortgage Bonds. The Office of the Superintendent of Financial Institutions (OSFI) has also announced plans to consult on and update regulatory capital requirements for residential mortgages for federally regulated lenders and private mortgage insurers.
Taken together, today’s actions will strengthen the resiliency of Canada’s housing finance system, reduce risks, and promote long-term stability and balanced economic growth.
How will the measures announced today by the Government, CMHC and OSFI affect the cost and availability of mortgages to homebuyers?
Combined, the measures are not expected to have a material impact on the level of mortgage rates, which remain at historically low levels, mortgage supply, or the competitive dynamics of the mortgage industry.
What are the other four measures previously taken to contain risk in the housing market?
Between 2008 and 2012, four rounds of changes were made to tighten eligibility rules for new insurable loans. These measures were aimed at encouraging insured borrowers to build and retain housing equity and take on debts they are able to service throughout the economic cycle. Among the significant changes were measures to:
- Increase the minimum down payment to 5 per cent;
- Decrease the maximum amortization period to 25 years;
- Limit the maximum insurable house price to below $1 million;
- Apply maximum debt service-to-income ratios; and,
- Apply a mortgage rate stress test for mortgages with terms of less than 5 years or variable rates.
More information on these measures can be found on the Department of Finance Canada website.