Canada’s New Mortgage Rules Explained

As of Monday (Feb 15th 2016) Canada’s new laws on mortgages came into effect. The new law increases the amount of downpayment a purchaser must come up to 10% on properties that exceed $500,000. But what does this mean and how will it possibly affect you? Here are a few scenarios which help explain how the changes will affect you:

 

Scenario #1:

You buy a home for $400,000. Before this new law you would have had to come up with a minimum of $20,000 as a downpayment. After this new law, this remains the same. Why? Because the home is under the $500,000 threshold.

 

Scenario #2:

-You buy a home for $700,000. Before this new law you would have had to come up with a minimum $35,000 downpayment (5%). However as of this past Monday that changes. On the FIRST $500,000 you still pay 5% (which is $25,000). On the REMAINING $200,000 you now pay 10% which is an additional $20,000.  The difference? An additional $10,000 must be saved for a TOTAL of $45,000. 

 

Scenario #3:

-You buy a home for $1,000,000. Before this new law you would have needed a minimum of $50,000 down (5%). After this new law you would now need $25,000 on the FIRST $500,000 PLUS an additional 10% on the remaining $500,000 which comes to $50,000. This means you now need double the downpayment, or $100,000 in total. 

As you can see, as the purchase price of the home increases, so does the downpayment.

Why Was This Done? 

This law was put into place to cool down expensive real estate markets like Toronto and Vancouver which have seen extraordinary price increases over the last 5 years. The government is trying to convince home buyers to save up more money for a downpayment which acts as a security cushion in the case of a price correction in the real estate market.

 

How Does This Affect Me?

If you are buying real estate under $500,000 it will not affect you. If your home exceeds $500,000 then it simply means you will need to save up a little longer to get a bigger downpayment.

 

Questions on this new law or about the real estate market in the Greater Toronto Area? Give us a call and set up a meeting to discuss opportunities in the real estate market.

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