The real estate market is always changing, and one of the most recent shifts could have a big impact on how much you need to save for a home. If you’ve been following the news, you might have heard about the changes to the Canada Mortgage and Housing Corporation (CMHC) mortgage insurance rules. These updates could make it easier for some buyers to enter the market, especially in more expensive areas.
Let’s break it down and explore what these changes mean for you and your home buying plans.
What’s Changing with CMHC Mortgage Insurance?
CMHC mortgage insurance is required when you put down less than 20% on a home. The key change is that the maximum purchase price eligible for mortgage insurance has been raised to $1.5 million. In the past, homes above $1 million typically required a larger down payment (20% or more). Now, this rule has been relaxed, allowing more flexibility for buyers who can’t put down the full 20%.
How Does This Affect Your Down Payment?
Let’s take an example to see how the new rules work. If you’re buying a $1.2 million home, the minimum down payment for mortgage insurance would normally be 20%, which is $240,000. But with the new rules, you now have options for putting down less, such as:
- 5% down: $60,000
- 10% down: $120,000
- 15% down: $180,000
The key benefit here is that you don’t need to come up with the full 20% up front, which can be a huge relief for buyers who might not have the entire $240,000 saved.
What About Mortgage Insurance?
When you put down less than 20%, you’ll need mortgage insurance to protect the lender in case of default. Let’s look at the mortgage insurance cost for different down payment percentages on a $1.2 million home:
- 5% down: The mortgage insurance cost is about $45,000, which gets added to your mortgage balance.
- 10% down: The mortgage insurance cost is lower than at 5% down, but it’s still significant.
- 15% down: You’ll pay less in mortgage insurance compared to 5% or 10% down.
How Do These Changes Affect Your Monthly Payments?
While the down payment might be smaller with these new rules, the question many buyers have is: “How does this impact my monthly payment?” Here’s a breakdown of what your payments might look like for a $1.2 million home, depending on your down payment:
- 5% down: Monthly payment would be approximately $6,682
- 10% down: Monthly payment would be approximately $6,276
- 15% down: Monthly payment would be approximately $5,910
- 20% down: Monthly payment would be approximately $5,411 (no mortgage insurance added)
As you can see, the monthly payment difference between putting down 5% and 20% is around $1,200. This could be more manageable for some buyers compared to saving an additional $100,000+ for the full 20% down payment.
Why Is This a Game Changer for Buyers?
These changes could open up new opportunities for homebuyers, especially in neighborhoods where home prices are higher, like in North York.
For example, imagine you’re interested in buying an older bungalow in North York that costs around $1.2 million. With the new rules, you could use part of your down payment savings (say, $120,000 instead of $240,000) and still be able to finance the home with a lower monthly payment. The best part? You could take the rest of your savings and use it to renovate the house to make it your dream home.
This flexibility could help buyers enter the market in areas that were once out of reach, or make it easier to buy a fixer-upper and make it your own.
What Does This Mean for the Real Estate Market?
The ability to put down less than 20% on homes up to $1.5 million could change the dynamics of the real estate market moving into 2025. It opens up more opportunities for first-time buyers, young families, and those looking to upgrade their homes. More buyers could be able to enter the market, which may increase competition in certain areas.
If you’ve been holding off on buying a home because you didn’t have the full 20% saved, these changes could be a game-changer for you. The ability to put down a smaller percentage without completely sacrificing your ability to buy in a desirable area could make homeownership more attainable.
If you’re considering purchasing a home or have questions about how these changes might affect you, I’d be happy to chat! Reach out, and let’s discuss your options.
Happy home hunting!