On February 15th, the new minimum down payment comes into effect for homes $500,000 or more, making it 10 per cent down instead of 5 per cent. With this increase just a couple weeks away, right now is the time get those mortgage pre-approvals in!
If you’re thinking of buying a home this year, you can’t afford to wait on that mortgage application, so the next couple of weeks will likely see a boost in real estate activity.
In case you’ve forgotten about this move, which was announced by the Finance Minister back in December of last year, here’s a quick recap of what it means and how it could affect you.
The required down payment on homes worth at least $500,000 will rise to 10 per cent from 5 per cent—however the higher threshold will only apply to the portion in excess of that mark. That means the minimum down payment for a home worth up to $1 million would be 7.5 per cent.
This move was intended to cool the overheated housing markets in Toronto and Vancouver, but there’s a risk it could exaggerate a home price correction in prairie provinces like Alberta. While this is the biggest mortgage move we’ve seen since 2008, when the 5 per cent down minimum was first implemented, the impact might not be so big for homebuyers after all.
In fact, to put things into perspective, over the past year just around 17 per cent of homes sold in Canada were between $500,000 and $1-million. Roughly 23 per cent of outstanding mortgages in Canada are high-ratio, with owners requiring government-backed mortgage insurance, meaning the rules will affect an estimated 4 per cent of new mortgages.
Since Calgary is still situated in a buyers’ market for real estate, inventory is up and home prices are down. What this means is that buyers are dealing with favourable conditions, being able to invest in homes at lower-than-average prices, making a great return on investment within a few years. Most first-time homebuyers in Calgary opt for condos, so majority of first-time buys would be under $500,000 anyways. However, with market prices sitting lower than year-over-year averages, this change isn’t going to affect a large percentage of people right away.
But if you are looking to buy over the $500,000 mark, give me a shout right away so you have a better chance of getting pre-approved before this switch happens.
