Ready for mortgage down payment changes?

Thinking of buying a house? Thinking of buying a house in a city where prices continue to soar, like Toronto or Vancouver? If so, you might want to take particular notice to some new mortgage down payment changes issued by the Federal Government which will take effect as of February 15, 2016.

CMHC (Canada Housing and Mortgage Corporation) who is the body that insures high-ratio mortgage against default (i.e. mortgages with less than down) will now require homebuyers to put 10 per cent down on the portion of any mortgage it insures over $500,000. For mortgage amounts up to $500,000, the down payment requirement will stay at 5 percent.

Now although that sounds like a heck of a lot of money, the average home price in Toronto in January 2016 was $631,092, for instance. The purposes of these mortgage changes are to put the brakes on overheating property markets and to keep folks from stretching themselves too thin with mortgage debt.

Regardless of the house prices for where you live, it is always a good idea to amass a substantial amount for your down payment. The more you owe, the less you own- which means you are more vulnerable to economic or market ups and downs.

Less debt, less interest

With a bigger down payment, in addition to being less vulnerable by taking on less debt, you’ll actually pay out a whole lot (like a whole lot) less in interest over the amortization of your mortgage. It will literally put money back in your wallet if you can save a more sizeable down payment.

Hurry up and wait…..

Time may be your biggest ally in keeping your mortgage debt down and your down payment resources up.  If you push back your time horizon for your housing goal that means you’ve got extra months (or even years) in which to save a little at a time to put down a bigger down payment.

Think of it-over the next year, how much can you afford to sock away from each pay period? What about tax returns and bonuses? In a year’s time, that can add up to a tidy sum.

Alternative savings

Do you have an RRSP? You are allowed to withdraw up to $25,000 (that means $50,000 per couple) in a calendar year to use as part of the Home Buyer’s Plan. That’s a lot of down payment dough.