The new mortgage rules scheduled to come into effect on February 15th, 2016 are here now. These will have a direct impact on buyers within the $500,000 and $999,999 range, who are paying less than 20% downpayment for the purchase of their home. These new rules seek to vary the down payment required for a home purchase, by increasing it from the current 5% to a 10% of the value of homes in the above range. Better explained, home purchases up to $500,000 will still require a minimum of 5% down payment, while only the excess will be subject to a 10% down payment.
For Example: A home purchase of $800,000 requires minimum 5% down payment ($40,000). With the new rules this deposit will continue to be 5% for the first $500,000 ($25,000), but will increase to 10% for the remaining $300,000 ($30,000) for a new total down payment amount of $55,000. This will mean an increase of $15,000 in the deposit that buyers with insured mortgages (high ratio mortgagees) will need to provide for the purchase of their new home or investment.
Although it is expected that this will have an immediate impact on Toronto’s housing market dynamics, especially during the busy Spring season, the shock shouldn’t be long lived. Previous mortgage rule changes have shown that although the market slows down for several months after these type of changes are implemented, activity tends to pick up soon after as this becomes the new operating standard.
This is the fifth and most recent mortgage rule change since the last four took place between 2008 and 2012. As Toronto and Vancouver are the only two major cities with average home prices above $500,000, these efforts intend to minimize risk in a market activity that has been reaching double-digit growth in most segments.
However, considering the historically low mortgage rates that we continue to experience, the market will most likely continue to push forward and be somewhat resilient to these new tightening of the rules, as it has done before. Nonetheless, another unexpected factor for uncertainty looms in 2016 and may further influence changes in the pace of Toronto’s housing market. Last December, the US Federal Reserve announced an increase of its benchmark rate for the first time since 2006. Considering that the Canadian financial market is closely related to the fluctuations experienced in the U.S., there is room for thought that interest rates in Canada may, in time, also shift upward. Being the current low interest rate scenario one of the main catalysts for Toronto’s housing market’s growth in the past couple of years, a potential increase of interest rates may be an important factor to monitor during 2016.
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Jose & Claudia
Jose & Claudia
RE/MAX agents since 2001, avid negotiators and passionate for what we do. Buying, selling or renting your home with us has never been easier!