Finance Minister Bill Morneau has just announced a significant change to CMHC-backed mortgages. Here’s what you need to know:
- Effective February 15, 2016, properties over $500K will require a 10% minimum downpayment. Current rules only require a minimum 5% for properties priced under $1 million (properties over $1 million aren’t eligible for CMHC insurance and thus a 20% is required).
- The increased downpayment only applies to the amount above 500K – so a $700K home would require a 5% downpayment on the first 500K and a 10% down payment on the remainder – or 6.4% or $45,000 would be required. A house priced just below $1 million would require a downpayment of 7.5% effectively.
- The government claims this should only impact about 1% of Canadians – though estimated to affect around 5% of Buyers in Toronto.
- This only applies to NEW purchases, so if you are renewing a $700K mortgage and only have 5% equity, you won’t be affected.
- The goal of the change is to cool overheated markets (code for Toronto and Vancouver)
Toronto Real Estate Statistics and Prices
- Average price of a property in the GTA in November 2015 was $632,685;
- In the city of Toronto:
- Average price of a semi-detached house: $750,608
- Average price of a condo: $415, 316;
- Average price of a detached home: $1,018,621
- 40% of homes sold for between $500K and $1 million over the past year
So what does it mean if you’re in the market to buy a property?
- You have until Feb 15, 2016 if you can’t meet the new down payment requirements. It isn’t yet clear if that means you need to have a signed Agreement of Purchase and Sale in place by Feb 15 or if you need to close by that date.
- We predict a rush to buy in the next 2 months and stronger than normal demand in December and January (traditionally our slowest months in Toronto).
- You’ll still need your closing costs in cash in addition to your downpayment. You can estimate land transfer tax here.
- If you’re a Seller with a property over $500K, now might be an excellent time to list it for sale.
Questions? Want to get in on the action before Feb 15? Get in touch.
Related: Downpayment Strategies for First Time Buyers
