New mortgage insurance rules come into effect

Homebuyers shopping for houses costing more than $500,000 face new rules starting today that are meant to cool the country's hottest housing markets.

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The new regulations increase the minimum down payment for homes with a selling price over $500,000.

The move is expected to take pressure off the Canada Mortgage and Housing Corporation, which offers mortgage loan insurance to homebuyers making a down payment of less than 20 per cent.

The minimum down payment for such government-backed insured mortgages will increase from five to 10 per cent for the portion of the house price above $500,000. The minimum down payment on the first $500,000 of the home's price will remain at five per cent.

Homes costing more than $1 million are not affected by the changes, as they already require a 20 per cent down payment. Homes selling for less than $500,000 are not affected either.

The changes mean, for example, that a $700,000 home will now require a minimum down payment of $45,000, up from $35,000. That $45,000 would consist of a five per cent down payment equalling $25,000 for the first $500,000 of the home, added to $20,000, which is the 10 per cent on the remaining $200,000 value.

Finance Minister Bill Morneau announced the changes back in December, saying they were designed to contain risks in the housing market, reduce taxpayer exposure and support long-term stability.

He said the new rules would specifically target Toronto and Vancouver's housing markets, where "prices have been elevated." He said the idea was to protect people buying houses to ensure they have sufficient equity in their home.

At the time, some economists said the changes would likely have only a small effect, since only about a quarter of Canadian homebuyers put a down payment of less than 10 per cent on their homes.

First-time buyers in big cities are most likely to be affected, since those selling homes they already own in cities with hot housing markets would have likely already built up equity in those properties to be able to afford the down payments.

The federal government has introduced a series of changes in recent years aimed at tightening rules for government-insured mortgages. They have included raising the minimum down payment to five per cent; reducing the maximum amortization period to 25 from 30 years; and capping the maximum insurable house price at $1 million.


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