Finance minister announces down payment rule changes

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New down payment rules will go into effective February 15, 2016.

“The Government’s role in housing is to set and maintain a framework that is equitable, stable and sustainable. The actions taken today prudently address emerging vulnerabilities in certain housing markets, while not overburdening other regions,” Finance Minister Bill Morneau said in a release. “They also rebalance government support for the housing sector to promote long-term stability and balanced economic growth.”

The minimum down payment for new insured mortgages will increase from 5% to 10% for the portion of the house price above $500,000, the finance ministry wrote.

For example: A $750,000 home will now require $50,000 down -- 5% for the first $500,000 and 10% down for the remaining $250,000.

Properties up to $500,000 will continue to require a minumum of 5% down. Properties in excess of $1 million will still require 20% down.

The changes are meant to reduce taxpayer exposure while supporting long-term stability of the housing market, according to the ministry.

“This measure will increase homeowner equity, which plays a key role in maintaining a stable and secure housing market and economy over the long term,” Morneau said. “It also protects all homeowners, including many middle class Canadians whose greatest investment is in their homes.”
 
 
  • Jesse D on 2015-12-11 10:16:19 AM

    They seriously need to cease their focus on the mortgage side and put some focus on the credit card companies that are charging high rates and constantly increasing limits.

  • donna on 2015-12-11 10:23:36 AM

    More balanced then I thought it would be. I believe the aging population is the cause of this. How many will be downsizing in the next 10 years? How many of higher priced homes will be on market at that time? I am being more specific for where my region is. I am not in Toronto or Vancouver.

  • Sean Binkley on 2015-12-11 10:35:58 AM

    Not exactly a big impact given that it means an additional $25k under new rules vs old on a purchase of $999k. Should be interesting to see if lenders implement the rules earlier than the actual effective date. Will the client also get a discount on the insurance premium (ie blended rate) or will they just charge the same and have lower risk now?

  • Shayne on 2015-12-11 10:39:58 AM

    Are they grandfathering folkso who only have 5% down on a build and the contract is already in place?

  • David Larock on 2015-12-11 10:43:17 AM

    A very reasonable change that anyone who cares about the long-term health of CDN mortgage lending should applaud.

    Folks, before everybody starts whining about how the Feds should increase regulations on credit cards and unsecured lines instead, can we all please put on our big boy pants and recognize that residential mortgage debt represents a far greater risk to our economy than unsecured debt?

    This is a tired narrative that our industry needs to abandon and frankly, complaining about it makes us look uninformed and hurts our credibility.

  • Steve on 2015-12-11 10:50:33 AM

    Totally agree with Jesse D. The credit card companies are the one driving up household consumer debt because of their high interest rates and willingness to just give out credit. All this does is make it tough for people to sell and pay off their debt and then re-purchase. Not a free market system when the government intervenes so much.

  • Bruce on 2015-12-11 10:58:17 AM

    Thank You Jesse D…
    I have been saying the same thing for years (I wrote to Jim Flaherty years ago and professed the same concerns to no avail) the Banks continue to ride the gravy train on the backs of Canadians and Government does nothing about it. Lets tweak the mortgages that's the problem, REALLY!
    Credit Cards are a sacred cow to the Banks. (HANDS OFF!)
    When my clients are approved they all are within the lending guidelines even the new more conservative policies set out by Government and Banks. The problem is after the fact when you have Banks handing out credit cards like “Chicklets” and the same client 3 to 4 years from the original mortgage closing now has $30,000 in credit card and LOC unsecured debts with large payments.
    What we have are Banks always asking for Government intervention to control and manage mortgage debt but I have yet to hear the Banks asking the Government to step in and control credit card rates and limits?

  • John Van Driel on 2015-12-11 10:59:17 AM

    Agree with Jesse D. Many consumers pay MORE in interest on their cards, etc. than on their mortgage. Crunch the numbers!

  • scott on 2015-12-11 11:01:15 AM

    Jessie I could not agree with you more. The interest charged by credit card companies are criminal and the cause of most families demise. If you or I charged those rates we would be in jail.

  • Joel Sida on 2015-12-11 11:01:18 AM

    Porperties below 500k wil be in high demand

  • Mike S on 2015-12-11 11:42:32 AM

    Can't agree with you more Bruce and Jesse. Regulations keep getting tighter and tighter, but banks can still add a $12 000 pre approved credit card to a commitment for a client at 43% TDS.

  • Bert on 2015-12-11 11:42:56 AM

    I agree Jesse.

  • Garry Dicks on 2015-12-11 11:51:19 AM

    Credit cards and Lines of Credit are cash cows for the Big 5 and as the Big 5 are the largest lobby group in Ottawa, don't expect any changes.

  • david s on 2015-12-11 12:08:42 PM

    I agree with Jesse there needs to be more focus on the rampant high-rate unsecured debt which is the catalyst to a borrowers default on their mortgage when they can no longer manage those debts. I understand the impact on tax payers when a Mortgage goes into default and that mortgages are Canadians biggest debt but rarely is it the mortgage payment that is causing the default.

  • Don S on 2015-12-11 12:14:36 PM

    Personal I like the change. It allows first time buyers in most markets to purchase with 5% and in the higher markets a little more equity is required. If an when we see rising interest rates and we will, this will be important. People only pay their mortgage when their home has equity in it.
    We all know that when interest rates rise affordability will become an issue and prices will drop especially in the major market as it continues to be a bid market and the increases in value has been incredible. The only issue I have with government is that its like pealing off a band aid very slowly. It been painful with all the changes so please look at it closely so we don't have to deal with this every few months. As far as credit cards go they have always been an issue. Some lenders are now asking client to pay off and close their credit facilities like the old days and this is a good thing. People should take response ability for their own actions we can't keep blaming the government. You would think the hi interest rates would discourage using them can you imagine how much people would spend if they lowered the rates. In closing this is a great business it's our job to educate and this is what sets us apart.
    So good luck and Merry Christmas one and all

  • Ann Todd on 2015-12-11 12:30:15 PM

    I'm in Toronto and in the past year, this would have affected 3 of my clients. The interesting thing is that only 1 of the 3 actually purchased in Toronto. 1 bought in Alberta (had another home, so if required, could have sold and had larger downpayment) and one bought in Pickering. I think this is going to have minimal impact for most people and the market in general, but I guess time will tell.

  • Mark N on 2015-12-11 12:37:44 PM

    Blaming the credit card companies and other others for high interest loans? Don't you think that people need to look in the mirror and realize maybe they shouldn't pay for things they can't afford? This is a good step towards mortgage stability in Canada, but until people stop blaming financial institutions for their own irresponsibility, nothing will change.

  • Sean Binkley on 2015-12-11 12:45:16 PM

    @scott the legal lending rate in Canada is 60% (sec. 347 criminal code) so, unless the credit card rate is above 60, it's perfectly legal. Check out EasyLoan's website 46% APR- still legal though and no one is holding a gun against someone's head to borrow it. Some would question moral issue, however, rate mitigates risk in lending (secured and unsecured).

  • Greg on 2015-12-11 12:49:32 PM

    Lets get over the Credit Card Issue! It is ubsecured debt and if a borrower defaults its on the bank.

    Mortgages are collateral security and if the market declines - especially on high end properties - the loss can be substantial. The tax payer (through CMHC) is on the hook in the end for that loss. Simply put, if you want (need?) the insurance to get a high ratio mortgage, you pay the piper, otherwise take out a conventional mortgage with a minimum of 20% down. As for the demand for the lower end, at $500,000 purchase the downpmt is 5%, at $550K it is only 5.45% overall, at $600K only 5.83% overall.

  • PB on 2015-12-11 1:07:51 PM

    Think this is good idea and agree home buying have way bigger impact on economy than credit cards. Bottom line is if you are carrying balance on your cards then you are living above your means

  • CJ on 2015-12-11 2:52:00 PM

    If the middle class continue to think that their house is their greatest investment, they will be in serious trouble. I guess that's why they are middle class. How can it be an investment when there is no cashflow?

  • Financial planner on 2015-12-11 7:05:06 PM

    As a financial planner who has partnerships with brokers, I was intrigued to see what reaction would be like. We can cry all we want about the banks...at the end of the day consumers have the right to say no and live within their means...it's what I preach everyday. David is 100% correct here...good to see one level headed broker here.

  • Kristina on 2015-12-11 11:34:34 PM

    Just because my bank gives me a credit card with a $10,000 limit doesn't mean I have to keep that sucker maxed out 24/7. Personal responsibility has to come into play at some point.

  • Sam Mohamed on 2015-12-12 12:50:32 AM

    True, Holiday seasons, consumers will shop for anything and not thinking if they can afford after all. Impulse Buying due to trends, reputations and prestiges are a problem which will have to go away. Remember, look at your wallets before shopping and think of the consequences of high interest of not paying it all. It's great that you will earn rewards points with your credit card compan but it's not great if you don't pay all your outstanding balances by the due date.
    Also some credit card company allows you to use most or all the points to pay off the balances provided you have enough points to pay all your balances.

  • Ron Butler on 2015-12-12 1:48:40 PM

    Thank you David Larock. Finally another rational voice in the face of the endless childish rants about credit card debt. Sure, credit card debt is bad but it is a consumer choice it is not about keeping a roof over your children's heads. Guys, its the mortgages that have government backing, not credit cards.

  • CG on 2015-12-14 3:08:41 PM

    Re: Mark N
    Thanks for a common sense remark - no pun intended.

  • Paul Therien - CENTUM on 2015-12-14 3:21:13 PM

    In January it will be 25 years for me in the industry. In that time I have seen the rules for mortgages change a LOT. I can remember when a sliding scale down payment was always required to mitigate the risk associated with higher valued properties. 5% on the first 250K, then 10% up to 500K, and 25% on all amounts after. Then in about 2005 the government allowed for straight 5% down on properties up to I believe 750K, then they took away the limits and you could buy just about anything for 5%. Then of course there came the 0 down mortgages.

    The feeling in the past was always, if you can afford to purchase a higher end home, you should have some equity in that home. It helps to mitigate the risk associated with the mortgage (the reality is that even at 10% equity most foreclosures are losing propositions when you factor in all of the costs). Yes, CMHC insures the mortgages, but that only means that they bear the risk.

    As for credit card debt… I’ve said it before but it appears to be worth repeating. Mortgages in Canada are, for the most part, backed by government insurance. CMHC, Genworth, and Canada Guarantee all receive government backing. Gen and CG @ 90%, CMHC @ 100%. That means that we as tax payers are exposed to over 1.4 trillion dollars of risk (for the record… that is MORE than the national debt of the country). The reason why the government can legislate against risk in mortgages is simply because they, and by extension the tax payer, is the one exposed to the risk.

    Unsecured debt risk is wholly owned by the lender, and by extension their shareholders. The rate of interest they charge on these credit facilities is a direct representation of the amount of risk that they are exposed too. Credit card debt generally sits at roughly 20-35% delinquency rates in Canada. That is over 1000X the rate of delinquency in mortgages, and because there is nothing to secure the debt, the risk is huge and priced accordingly. The government, and the tax payer, is not exposed to any risk for these debts.

    As for debt, either secured or unsecured, people need to stop blaming the banks and other lenders. I am the only person who is accountable for the amount of money I choose to spend, and how much I choose to spend on credit. A bank does not hold a gun to anyone’s head and force them to rack up credit card debt, they make that choice of their own free will. Using the excuse “I got approved for the limit” is not a valid argument. Just because you are approved for it does not mean you should spend it.

    We live in a society today where there is very little personal accountability for the choices that we make. We blame credit cards companies when we over spend, we blame bartenders when we drink too much, etc. We as individuals have to take accountability for the decisions. If anyone is looking for someone to blame for how they choose to spend money, look in the mirror and you will see the one and only person who is responsible.

  • London Mortgage Broker on 2015-12-14 7:55:24 PM

    I don't see any downside to this new rule. There are people buying homes that they should not be buying and basically, if you can not afford the additional down payment requirement when you exceed $500,000, then you probably shouldn't be buying a house at that price level.

  • Jeff L on 2015-12-15 10:46:15 AM

    Quite surprised at all the complaints about credit card limits and rates. The consumer knows full well what their credit card rates are before using the card. Spending beyond their means is 100% the problem of the consumer.

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