Yesterday, I received a text message from  a former client, let’s call her “Sheila”, asking about the down-payment changes coming into effect next month.

She began:

“Hey Stevie, how’s it going? Just wondering if you can shine some light on these new mortgage rules.  I thought you can still buy as low as 5% down up to $500k and anything above that is at 20%.  Is that right? I read an article yesterday that said you have to have a min of 10% down for anything over $500k. Which one is it? Thanks :)”

Well, Sheila’s understanding of the changes is only partially correct. Let’s shed some light on the confusion.

Federal Finance Minister, Bill Morneau, announced in December that  new downpayment rules will apply to all government backed mortgages, as of February 15, 2016.

Here’s a breakdown of the announcement:

• The minimum down-payment still remains at 5% on purchases, up to a maximum of $500,000.

• For purchase amounts above the $500,000 mark, a further 10% is required.

• For example, a person buying a $600,000 property would need a down payment of 5 per cent on the first $500,000, then 10 per cent on the remaining $100,000, resulting in a minimum down payment of $35,000 of the total purchase price.

• Again, keep in mind 10 per cent applies only to the incremental amounts above $500,000, not the entire price of $600,000, as cited above.

 “What if I already have an insured mortgage? How will this change affect me?”

• This change applies only to new insured mortgage loans. Homeowners with an existing insured mortgage or those renewing existing insured mortgages will not be affected, as mortgage insurance is good for the life of any existing insured mortgage.

“I have already applied for mortgage insurance but my mortgage is not yet in place. How will this change affect me?”

• Qualified borrowers who get approved before February 15, 2016, can still buy with only 5% down. However, lenders will likely set their application submission deadlines 1-2 weeks earlier.

• Any mortgage insurance application received between December 11, 2015 and before February 15, 2016 that does not conform to the new measures, must have a mortgage in place by July 1, 2016.

Bare in mind also that non-owner occupied homes, such as income properties, do require a minimum 20% down-payment.  This rule also applies to properties priced at 1 million dollars and above, as federal backed insured mortgages are no longer available on purchases in this price range.   Talk soon!