Housing market experts as well as Finance Minister Bill Morneau suggested on Friday that higher down payment requirements on homes priced over half a million dollars will only affect a small number of buyers.
The intent is to force prospective real estate purchasers of higher priced homes to save more before making a purchase, while experts suggest the main aim of Friday’s announcement is to tap the brakes on the red-hot markets of Vancouver and Toronto, where average prices have soared well above the half-million dollar mark.
At a press conference in Ottawa, the minister said that as of Feb. 15, buyers purchasing homes between $500,000 and one million dollars will have to make a minimum down payment of 5 per cent on the first $500,000, and 10 per cent of the dollar value above that amount.
Morneau used the example of a $700,000 home, which will now require a minimum down payment of $45,000, or an increase of $10,000 above what the existing minimum of 5 per cent requires.
How it breaks down: A homebuyer looking to put the minimum down on a $700,000 home would have to commit at least 5 per cent of the first half a million dollars, or $25,000, plus 10 per cent of the remaining $200,000, which would mean another $20,000 (to arrive at $45,000). Under the current rules, which only require 5 per cent down on the entire purchase price, a $700,000 would only require a $35,000 down payment.
WATCH: Ottawa is implementing new mortgage rules next year, that will require some homebuyers to make a bigger down payment. Grace Ke explains.