This week, a new mortgage rule went into effect. Home buyers are now required to put down a minimum downpayment of 10% on the price of homes over $500,000. How will this 10% rule affect local real estate?
Not at all.
Very little.
Unnoticeably.
The 10% downpayment rule
First of all, the 10% mortgage rule is more complicated than the headlines lead readers to believe. The minimum 10% downpayment is only on the amount above $500,000.
Under the old rules, if you bought a $700,000 home, the minimum you would have to put down was $35,000 (5% x $700,000).
Under the new rules you will have to put down $45,000 (5% x $500,000, + 10% x $200,000). So, you will need $10,000 more for your downpayment, which if you can afford to buy a $700,000 home, should not be a problem, right?
Mortgage insurance
I don’t really get involved with my clients’ financing issues. I rely on mortgage experts and traditional lenders to give that kind of advice. I ask my clients if they have spoken with their lender yet and leave it at that. So, I don’t know what percentage of the buyers I work with are putting down the minimum downpayment amount. However, if I were to guess, I would say that the majority of buyers in Waterloo Region are putting down 20%. Nobody wants to pay the CHMC mortgage insurance if they don’t have to.
Average price
The average home price in Kitchener Waterloo is somewhere in the range of $360,000 (single detached houses average is slightly over $400,000), so the average buyer is under the threshold for the new rule anyway.
Many local realtors think the new rule is aimed at cooling the hot Toronto and Vancouver markets. Even so, the new rule’s impact there will be minimal.
What home buyers are saying
Homebuyers that I am currently working with are saying nothing. The impact of this new 10% rule, even if it is misunderstood, has lead to not one single comment or question from client or an interested stranger.
