Starting December 15th, the rules around minimum down payments for homes priced over $1 million in Canada will see a significant shift. These changes will directly impact buyers in high-priced markets like Toronto and Vancouver, where the average home price often exceeds the $1 million threshold.
Under the current system, buyers of homes priced over $1 million must make a minimum down payment of 20% of the purchase price. This has made homeownership challenging for many Canadians in markets where prices continue to soar.
However, the new guidelines introduce a tiered approach to down payments:
• $1M purchase: $75,000
• $1.1M purchase: $85,000
• $1.2M purchase: $95,000
• $1.3M purchase: $105,000
• $1.4M purchase: $115,000
• $1.499M purchase: $124,999
This means that buyers purchasing homes up to $1.5 million may now qualify for a mortgage with less than 20% down, as long as they meet the other requirements and obtain mortgage insurance.
What Does This Mean for Buyers?
These changes aim to make homeownership more accessible by reducing the upfront costs required to enter the market. For instance, a $1.2 million home purchase now requires a minimum down payment of $95,000—a significant reduction compared to the $240,000 down payment under the old 20% rule.
This adjustment could open up opportunities for first-time buyers or those looking to upgrade, particularly in expensive urban areas.
The Flip Side: Higher Debt Loads
While the lower minimum down payments are good news for buyers struggling to save for a 20% deposit, they come with a trade-off: larger mortgage balances. Buyers will need to consider the long-term financial implications of carrying a bigger loan, including higher monthly payments and increased interest costs over the mortgage term.
For example, with mortgage rates remaining elevated, even a small increase in the loan amount could add up to tens of thousands of dollars in extra interest over time.
Market Impact
This change is expected to have a noticeable effect on the housing market, particularly in the $1 million to $1.5 million price range. Freehold properties in cities like Toronto and Vancouver, which are already experiencing intense demand, could see even more competition as buyers who were previously priced out enter the market.
Sellers in this price range may benefit from increased buyer interest, potentially leading to higher prices. At the same time, buyers will need to act quickly and strategically in what is likely to become an even more competitive segment.
What Should Buyers Do?
If you’re considering purchasing a home in this price range, now is the time to evaluate your financial readiness and consult with a mortgage advisor. Understanding your budget, pre-approval status, and how these changes impact your purchasing power will be critical in navigating the market effectively.
Final Thoughts
The upcoming changes to minimum down payments are designed to make homeownership more accessible, but they also highlight the importance of careful financial planning. Buyers should weigh the benefits of lower upfront costs against the long-term implications of larger mortgages and higher debt loads.
With these shifts on the horizon, the real estate market in Canada is poised for a new wave of activity—particularly in the $1M to $1.5M range. Buyers and sellers alike should stay informed and prepared to adapt to the evolving landscape.
As always, should you have any questions - feel free to reach out. We'd love to hear from you.
Ren + Diana