New 10% Minimum Down Payment Explained

Starting on Febraury 15 of this year, the minimum down payment for federally insured mortgages is increasing from 5% to 10%. The increase to 10% only applies to the portion of the property above $500,000. Mortgage insurance is only required when the down payment is less than 20%, and properties over $1,000,000 require 20% down. This new rule therefore only affects buyers searching in the $500,000-1,000,000 range.

For example, if you purchase a property for $800,000, you will now pay $55,000 down rather than $40,000 (5% of $500,000 = $25,000 & 10% of $300,000 = $30,000, giving a total of $55,000).

Finance Minister, Bill Morneau, is trying to make sure that buyers don't get in over their head with borrowing. If people buy what they can more realistically afford, they will be better able to manage if there is a sharp price correction. With the competitive real estate markets in Toronto & Vancouver, the government is trying to control how much buyers are stretching themselves to get their dream home.

We most likely won't see a big differencee in the number of buyers, it is just a precaution forcing buyers to be a bit more conservative. This will protect the long term stability of the housing market.