Consumers and professionals, as well as media outlets, seem a bit confused about the new mortgage guidelines. Here is some accurate information regarding the new rules. The first $500,000 purchase of a new home requires only a 5 percent mortgage downpayment. The second $500,000 purchase requires a 10 percent down payment.
For example, if you purchase a starter home in downtown Toronto for $750,000, you would need a down payment of $50,000. The first $500,000 x 5 percent = $25,000. The remaining amount, $250,000 x 10 percent = $25,000, which brings the total down payment to $50,000.
There is no change in the 20 plus percent down payment for the cost of properties valued over $1 million. That requirement remains.
The Effect it has on the People in London
It will have no effect on the people of London-based on experience with clients. It would probably affect a small percentage of highly leveraged buyers in London and in the outskirts of the city where income tends to be lower based on home value.
Using the starter home as an example, the minimum down payment required for a $750,000 home is $50,000. That down payment amount gets used to improve the space. In some instances, it may cost over $100,000 to renovate the space and make it livable. This is the reality of the real estate market.
The renovation of the home does not get a mortgage. It is the cash on hand that gets used for improvement. Based on the example illustrated, people purchasing a home for $750,000 will not get affected by the rule change.
The new regulations will not affect first-time homebuyers either. Most likely, they will only be purchasing a one-bedroom condo for under $500,000, which is a minimum of 5 percent down payment.
Long-time homeowners will see an increase in their home value. That increase will get them over the new government minimum down payment threshold.
The Reason for the Change in Mortgage Rules
No one seems to know why the government has made these changes. They had previously made an announcement in the hopes of slowing growth in Toronto and Vancouver.
The changes will have no impact on either Toronto or Vancouver. However, there is a possibility that it might affect Canada’s housing markets.
In conclusion, it seems like a government tactic. They want to give the impression that they are taking precautions to preserve the conservative banking system. They do not wish to overleverage the banking system with mortgage debts.