Canadian Government Change to Minimum Down Payment on Insured Mortgages

Policy Change

The Canadian government announced today that it is increasing the minimum down payment on insured mortgages from 5 per cent to a two tiered system under which the minimum down payment on houses priced above $500,000 will remain at 5 per cent, but there will be an additional 10 per cent required on the portion of the house price above $500,000.

As an example, for a house priced at $700,000, the minimum down payment for mortgage insurance purposes under the status quo would be $35,000. Under the new system, the minimum down payment would be 5 per cent x $500,000 + 10 per cent x ($700,000-$500,000) or $45,000. It is important to note that the homes priced at or above $1 million already require a minimum down payment of 20 per cent.

The changes to minimum down payments will take effect on February 15, 2016 and apply to new mortgage loans where a mortgage insurance application is received on February 15, 2016 or later.

Market Impact

The increase in minimum down payments on homes above $500,000 is designed to target excess risk taking in Canada's most expensive housing markets. Most homes in BC are priced below $500,000 and therefore this change will have limited impact in much of the province. However, 35 per cent of homes sold in Metro-Vancouver are priced between $500,000 and $1 million and so this change could adversely affect or delay demand in those markets, particularly for first-time homebuyers. That said, given the incremental nature of the change, and since minimum down payments are less frequent at higher home prices, we expect the overall impact to be relatively minor.