The new rules for mortgages that were announced in December are finally coming to pass. If you are planning to make a home purchase you have only until February 15th to avoid the imposition of new down payment rules on your purchase. Industry leaders had known for some time that new rules were in the making, so the December announcement came as no surprise. In fact, many in the industry were relieved that the rules were less expansive than expected. Based on historical market figures, Benjamin Tal of CIBC World Markets, Inc. estimates that the new rules will affect just 4% of all home buyers.
Homes in the Sweet Spot Between $500,000 and $1,000,000 Take the Hit
As explained by the editors at Canadian Mortgage Trends.com, under new the new lending rules, individuals hoping to secure an insured high-ratio mortgage for a home will be required to make a 5% down payment for loan amounts of up to $500,000. Loans covering the next $500,000 will require a 10% down payment. This effectively increases the total down payment by up to 2.5%, or $25,000, depending on how close to the $1,000,000 the total loan amount comes.
The largest impact will, of course, be on those looking to purchase homes costing more than $500,000, but less than $1,000,000. Million dollar and up homes did not qualify for high-ratio mortgage insurance before and still won’t.
In his report for CIBC, Tal calculates that in 2015, sales of homes costing between $500,000 and $1,000,000 made up 17% of the total market nationwide. While Vancouver and Toronto had many high-value home sales, a significant percentage were for homes costing more than $1,000,000. Thus, the impact of the new rules in those cities will not be as great as might be expected. Calgary, on the other hand, has a larger share of homes that hit the high-ratio mortgage sweet spot. CIBC estimates that the new rule may impact up to 10% of new home sales in Calgary.
Calgary Predicted to Feel Most Pain
However, Calgary’s high-ratio market has already seen a downturn. According to CREB, November sales of detached homes costing more than $700,000 in Calgary accounted for 15% of the market in 2014 and just 13% in 2015. January 2016 housing figures closed with an aggregate benchmark price of just $447,300 with approximately 5,000 active listings. CREB predicts that Calgary listing for houses in the $500,000-$600,000 will continue to decline. No doubt, the new rules won’t help to reverse this trend.
Procrastination Doesn’t Pay
If you are looking at a home in that high-ratio sweet spot and don’t want to pay a higher down payment, the time to act is now. Under the new rules, buyers who obtain mortgage approval prior to February 15th will still be able to make their purchase with only 5% down. But, according to Canadian Mortgage Trends.com, if you have not already submitted an application, time may be up as obtaining approval now may take longer than the time remaining. So if you are close to completing your application process, finish it up and rush to your lender before cupid strikes and time is up.