Required Down Payment Reduced from 25%->20%!

The Canadian Government has introduced legislation that will reduce the mandatory amount that home buyers have to put down on a home to avoid the expensive CMHC fees. Home buyers can now put down 20% instead of 25%.

Here is the article from The Globe and Mail:

…Canada’s big banks are applauding new legislation that lowers the required down payment for mortgages. The federal government said Friday it is lowering the minimum down payment requirement for mortgage default insurance from 25 per cent to 20 per cent

…Bank of Montreal says home buyers could save an average of $2,500 in insurance premiums, based on an average home price of $300,000. “We see a number of customers scrambling to meet the 25 per cent down payment, in order to avoid paying the insurance premium,” said BMO vice-president Cid Palacio. “These changes will allow those home buyers to reduce their down payment and get into their new home faster.”

…Royal Bank of Canada said a recent survey it did found 39 per cent of Canadians have borrowed against the equity of their home, by either refinancing their mortgage to a larger amount, or by taking out a home equity line of credit. “Now, with refinancing at 80 per cent, we’re making an extra 5 per cent equity available to our clients for their financing needs,”

This also means that people now using the Smith Manoeuvre have access to 5% more of their equity! Cannon_Fodder, time to re-work those spreadsheets! :)

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Weekend Reading - New Year Edition 2008 | Million Dollar Journey
13 years ago

[…] writes about the Top 5 Mortgage Trends of 2007.  Among them include how the down payment requirement for a conventional mortgage dropped from 25%->20% and the introduction of longer amortization […]

The Smith Manoeuvre - A Wealth Strategy (Part 2) - Million Dollar Journey
13 years ago

[…] The reason is that most of the re-advancable mortgages out there REQUIRE 25% down. The mortgages that do NOT require 25% down will charge an extra CMHC fee. I believe that the Canadian government is in the process of introducing legislation that will reduce the 25% down payment requirement to 20%. […]

14 years ago

Anyway I am stuck with them for now, but am looking at different options for use with the SM.
thanks for all your help everyone.

14 years ago

vr6 – I think you just have to be patient and get the HELOC raised when you can. Banks work a certain way and that’s the way they work.

14 years ago

that is not what I’m asking.
I asked the bank when the closing date happens,
(firm date now) basicly can we up the Heloc for more cause the house is NOW worth more.

Although the six month term would be a good idea ,
I wouldn’t think to do this with the low rate through the builder i have. thanks

14 years ago

So you are asking the bank to increase the loan value of a home that is not ready for occupancy. Since they have no certainty on the completion, or whether the finished value will be equal to the proposed value (i.e. will the finished basement be complete, etc.) You are asking them to increase the value on something that does not really exist. In addition, until a home is occupied, most lenders consider the sale price to be the appraised price. Many others have asked this question in other fora before, and found the same answer. Thus, I would think that they are being reasonable and consistent with others’ experience. I’d suggest that you look at a six month term, and renegotiate the loan at that time

14 years ago

new home , not finished yet.
NOT recently purchased (long delays)
price has gone up 25-30 k, and Rbc Lady said that “they only give the Heloc on the purchase price and not the appriased value, but in 3-4 months after you move in, if you want we can re due the papers , get an appraise on the house and up the heloc BUT you pay the fees.”
So not sure how to approach the bank now.

14 years ago

My experience was opposite vr6man22. When I went to RBC to change my mortage product about 2 years into a five year term, I took a copy of our Tax Assessment, showing the increase since two years previous. She not only accepted my valuation, she further adjusted it for the increase in value that had occurred over the 9 months post appraisal. It may have helped that I have had a lengthy relationship with the Bank, and have worked with this individual on many of the products I have purchased, so they have a good comfort level with my banking habits.

I echo Mike’s question — are you in a recently purchased home that has appreciated between purchase and occupancy? If so, and you are a new customer, the bank may wish to see your payment habits before committing a greater level of loan, especially as you may be using a ‘paper profit’ as security.

14 years ago

Why would they use the purchase price unless the house was recently purchased? I find it hard to believe that the bank wouldn’t want to be able to lend more $$ by using the appraised value in the situation where the house has appreciated over the years.

vr6man22 – what is your situation? Is your house/condo worth significantly more than the purchase price?

14 years ago

According to their Home Equity Calculator, they’re using the appraised value, but web site may be wrong. I had the same problem too several years back, and ended up with the President’s Choice.