Tuesday, 14 July 2015

Are 10% Minimum Down Payments In Our Future?

Those of you sitting on the sidelines waiting for mortgage rates to continue their decline may be in for a pleasant surprise. If you hold the same beliefs as many financial analysts and experts then you might be expecting a lower Bank of Canada rate soon. At the moment things are still up in the air, but recent economic indicators and attitudes are starting to indicate that the government may drop rates once again.

While I have mixed feelings about the Bank of Canada lowering their rates, it's hard to dispute that these lower rates almost always mean an increase in housing demand. With the perceived savings of lower interest rates comes renewed demand from home purchasers and people considering a refinance. This could mean big opportunity, but also big risk in red-hot real estate markets like Toronto and Vancouver.

What's The Catch?

If the demand for housing starts to grow at an unstable rate, the Department of Finance will likely start looking for ways to pull back the reigns and control the real estate markets. There are several methods by which they could achieve this, but one of the most effective might be to increase the minimum down payment required.

There have been hints of an increase of the minimum required down payment from the current 5% to as much as 7-10% of your home's purchase price. For many young Canadians, this could be enough to drive them out of the market, especially in pricier areas like BC's lower mainland or the greater Toronto area.

According to a recent report released by CAAMP, 19% of first-time home buyers would probably not have been able to purchase their homes, had the minimum down payment been 10%. This just goes to show the kind of impact that this increase could have on some buyers.

Another article(CLICK HERE) by Robert McLister with Canadian Mortgage Trends highlights some more key data and important points to consider if the Bank of Canada does decide to drop rates soon. Whether they choose to lower rates this week or in September, there could definitely be some rule-tightening coming along shortly afterwards.

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