Minimum Mortgage Down Payment Increase

On Tuesday of last week, Evan Siddall, President and CEO of CMHC (Canada Mortgage and Housing Corporation spoke to the House of Commons Finance Committee about the impact that COVID-19 has had on the mortgage and housing industry so far, as well as projections for the future. One of the main takeaways from this meeting was the potential for CMHC to increase the minimum mortgage down payment for housing from 5% to 10% due to this pandemic.

Why They Want to Make the Increase

Siddall shared that CMHC anticipates mortgage defaults to reach $9 billion dollars as a result of this pandemic. They are worried about how the increased amount of mortgage debt, mixed with the decline in housing prices and increased unemployment will affect Canada’s long-term financial stability. Canada wants to prevent their household debt from going even higher than it already is due to the virus, and want to do so by increasing the minimum mortgage down payment required for purchasing a home.

What it Means for Banks

For banks, increasing the minimum mortgage down payment amount for a purchase would provide extra security and less losses by adding an additional 5% cushion. The bank’s goal is to protect buyers, especially first-time home buyers, from potential increases of losses on their investment should prices begin to fall. However, as mentioned in previous blogs, the bank never loses. Their main concern is to avoid Canada’s housing debt from getting even larger, especially after a pandemic, and a 10% minimum mortgage down payment does just that.

What a Minimum Mortgage Down Payment Increase Would Mean for Consumers

We predict that the post-Covid mortgage world will see some definite changes for the client. One main change that we are anticipating is stricter lending policies, especially in terms of income. Clients will need to be able to show job stability through their income going forward. The 5% increase will make it more challenging for buyers to provide a down-payment. On the bright side, however, requiring the additional 5% will force mortgagors to increase their deposit, further decreasing their required mortgage amount.

In terms of the market, CMHC predicts that housing prices will drop between 9-18% in the next 12 months. If you were considering purchasing a home in the near future, this, combined with the potential minimum mortgage down payment increase may be a good thing to keep in mind!

COVID-19 has presented so many adjustments to the financing world in this short amount of time and will continue to change the way we operate going forward. Our job at Robert Floris’ Mortgage Architects is to best prepare our clients for these changes by keeping you informed and up to date with the various updates. If you ever are unsure about anything or would like some more information on all of the COVID-19 mortgage updates, please do not hesitate to give us a call and our team will be more than happy to help!

For more on down payments, try this article!

Robert Floris has been in the mortgage industry for 30 years, including working as a Sales Manager for a major chartered bank. Over his career, he has personally lent over 1 billion dollars and proudly continues to advise and tutor his valuable clients.