New rules for minimum downpayments over $500000

12/14/15 2:24 PM

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So, you want to buy a house for over $500000? Awesome, I’m your guy. First, let’s just clarify the changes announced by Finance Minister Bill Morneau a couple days ago. The official statement is here, and reads, in part:

Effective February 15, 2016, the minimum down payment for new insured mortgages will increase from 5 per cent to 10 per cent for the portion of the house price above $500,000. The 5 per cent minimum down payment for properties up to $500,000 remains unchanged.

Up until and including February 14 2016, you may still purchase a house for over $500000 (up to $1000000) with only 5% down payment, provided you have access to a lender who will do it and your credit is good, of course. Let’s take a look at how much more you will need up front to purchase houses of a variety of prices after the change comes into effect:

Purchase Price	Before 15 February 2016	After 15 February 2016
$400000	$20000	$20000
$450000	$22500	$22500
$500000	$25000	$25000
$550000	$27500	$30000
$600000	$30000	$35000
$650000	$32500	$40000
$700000	$35000	$45000
$750000	$37500	$50000
$800000	$40000	$55000
$850000	$42500	$60000
$900000	$45000	$65000
$950000	$47500	$70000
$1000000	$50000	$75000
$1500000	$150000	$175000
$2000000	$250000	$275000
$2500000	$350000	$375000
$3000000	$450000	$475000
$3500000	$550000	$575000
$4000000	$650000	$675000

Here are the formulae I used to calculate these numbers:

Before the change:

Up to $1000000: just multiply it by 5%. Easy.
Over $1000000: [(1000000×5%)+((purchase price−1000000)×20%)]

After the change:

Up to $500000, just multiply it by 5%. Easy.
$500000-$1000000: [(500000×5%)+((purchase price−500000)×10%)]
Over $1000000: [(500000×5%)+(500000×10%)+(purchase price−1000000)×20%]

Here’s a video by Preet Banerjee, some guy I’ve never heard of who seems to have pretty decent credentials. He explains the same things with some better graphics.

My thoughts on this change are rather neutral, only because so much has been done in the past 5-8 years by the federal government to protect our economy from the pathetic collapse our southern neighbours suffered as a result of such widespread financial idiocies as NINJA loans (no income, no job, no assets).

“Hey, do you want a mortgage? Let me first check your pulse. Yup, you have a pulse, therefore I will fund this mortgage for you.” A year later: “wait a minute, why are so many people defaulting on their mortgages?  I made sure they had a pulse.”*
-Len Derzarus

In Canada, the government made regular and prudent changes to lending rules, such as reducing the number of years you could amortize a loan (remember 40 year mortgages?), eliminating 0% down payment options, and generally making it slightly harder to qualify for a mortgage. While it may seem unfair for those trying to enter the market for the first time, it has ultimately proven wise in the long-term, because anyone who was able to pass the new standards is much less likely to go into foreclosure. So remember, it doesn’t mean that you now have to come up with 10% on a property over $500000, it only means that you need to come up with a bit more for the portion over and above $500000. Sort of like how income tax rates work for different brackets:

Federal tax rates for 2015

• 15% on the first $44,701 of taxable income, +
• 22% on the next $44,700 of taxable income (on the portion of taxable income over $44,701 up to $89,401), +
• 26% on the next $49,185 of taxable income (on the portion of taxable income over $89,401 up to $138,586), +
• 29% of taxable income over $138,586.

Happy buying and selling, friends! I look forward to helping you out in the years to come!

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*Only a slight exaggeration of what actually went down.