New Canada mortgage rules and how it will affect the condo market?
On December 11th 2015, new Finance Minister of Canada Bill Morneau just changed the mortgage rule for home and condo buyers. But what is the new Canada mortgage rules and will it impact condo market ?
Current mortgage rules
Condo buyers are currently allowed to put a minimum 5 % down payment to qualify for a mortgage with Canada Mortgage and Housing Corporation. The CMHC insurance will still be required for any mortgage having less than 20 % down. This rule does not apply to properties over $1,000,000 where the minimum is set at 20 %.
New Canada mortgage rules
Starting February 2016, for all properties over $500,000 CMHC will require a minimum of 10 % on any portion over the $500,000. If you want to buy a condo for 650K the minimum down payment will then be 40K instead of 32.5K. You get this number doing 5% of 500K + 10% of 150K.
- Minimum down payment on 600K = 35K (5.38%).
- Minimum down payment on 750K = 50K (6.66%).
- Minimum down payment on 900K = 65K (7.22%).
- Minimum down payment on 1 Million = 200K (20% the mortgage rule remains the same as the old 20% down for purchase over 1M).
CMHC will still be required for all condo purchase with down payment less than 20%.
Demand for condos will increase
House over 500K will be harder to access for homebuyers with this new rule and people will tend to focus on something more accessible like condos. You can easily find a 2 bedroom condo for less than 500K compare to brand new house in Montreal.
If the demand really increases, we could then expect condo prices to rise based on the law of supply and demand. Homebuyers who were planning to buy their dream house will probably have to wait a bit to reach the minimum down required with this new Canada mortgage rules.
Any questions on the new Canada mortgage rules, please check with your mortgage broker. If you want to share your mortgage rule opinion and think the market will go to another direction, please contact me here.