The New Mortgage Rules Effective February 15th. 2016

Breaking News:

Today Bill Morneau, Finance Minister, announced some significant changes to mortgages.  Effective Feb 15, 2016 the minimum down payment for house purchases over $500,000 will require a bigger down payment.

Here's how that works:

A purchase price of $800.000 until Feb 15th, 2016 would require a down payment of $40,000.  After Feb 15th the down payment changes to 5% on $500,000 ($25,000) and 10% on the amount over $500,00 (10% x $400,000 = $40,000).  Your new down payment required is $65,000.

This is a dramatic change and deserves to be read between the lines.  The Minister today said he was ensuring  credit worthy borrowers maintained enough equity to protect them. There is also a lot of talk of the US raising borrowing rates next month.   There appears to be a lot of pressure on the government to cool the housing market before it corrects itself.

A market that shuts out first time buyers is not a good thing.  First time buyers are shut out more by the price of housing than down payments.  At this time first time buyers have little hope of getting into the market because of the price and not because of their inability to save money.  They are also affected by the interest rates.

Lets take a look back to the early 1990's.  First time buyers were shut out of the market.  Prices were out of reach and buyers were flocking to the suburbs and small towns in big numbers.  Those lucky people that managed to get into the market soon found they owed more money than their houses were worth.  It would appear the government has not forgotten the lessons of that time.  While they won't out right say there is a correction on the horizons its getting ever more apparent.  The changes today will ensure those buying will have a cushion.


More to come on this for sure.