New Legislation Could Mean Bigger Down Payments

Posted by Gurpreet Ghatehora on Friday, January 22nd, 2016 at 9:07pm.

Recent proposed changes to the home buying process by the federal government could mean bigger down payments on more expensive houses, The Globe & Mail reports. The new change will require larger down payments on homes worth more than $500,000 in an effort to close certain risks to the housing market that could harm the entire economy.

Insiders expect that the increase will be from five percent to ten percent, so people will have to have a minimum of five percent for the first $500,000 and will need ten percent for any amount of money over that amount. For example, a $750,000 home will require $45,000 down: $20,000 for the first $500,000 and $25,000 for the remaining $250,000. A minimum of five percent will still be required for homes up to the half million mark.

The larger down payment on homes is designed to help people in Canada’s larger markets, namely Vancouver and Toronto. According to Finance Minister Bill Morneau, the government “want[s] to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home.”

In markets like Toronto and Vancouver, which have seen rising housing prices far above the rest of the nation, the new strategy can help new home buyers avoid debts that will ruin them down the line. As for projected housing prices, experts do not believe the changes will change prices that much. According to Robert Kavcic, senior economist with BMO, the changes only target a small number of consumers. "Rather than a blunt instrument to cool the market,” he told CBC News, “This is a targeted measure designed to deter a very small segment of buyers from stretching into the market with a very low equity position.”

Overall, the changes are expected to protect both the CMHC, Canada’s largest supplier of home insurance, and consumers, who will stand to have more equity in higher-priced homes thanks to these new policy requirements. The changes are expected to come in the new year.

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