New mortgage rules came into effect yesterday that changed the minimum down payment on an insured mortgage from a straight 5% to 5% on the first $500,000 and 10% on the amount over $500,000. Market commentators said that they thought this had something to do with the increased level of activity in out market, and that it could potentially slow things down going forward.
The minimum downpayment on a $700k house went from $35k to $45k. First of all the number of $700k, or even 500+k for that matter, homes being purchased with 5% down is quite small. If you look at the income requirements to qualify for a $700k mortgage, once you factor in closing costs and CMHC premium you that’s what you’ll be borrowing, it seems unlikely that someone qulaified to purchase a 700k home is going to be doing it with a minimum down. Moving that minimum down from $35k to $45k certainly isn’t going to have any effect on the marketplace. Commentators saying it does should go back to reading tea leaves for stock picks.
It’s like the old days of 105% financing. If you qualified for it, very high income and sterling credit rating, you would never need it. It was a phantom. Much like this is a phantom solution to a problem that doesn’t exist. It allows the powers that be to say that they are doing something to address a percieved issue in the marketplace, a classic red herring strategy that got a bunch of ink and airplay yesterday when in the end it really means absolutely nothing.
So, double Pfft, keep calm and carry on.