New Stress-Test Rules for 20%+ Down Payments

A mortgage stress test has been implemented by Office of Superintendent of Financial Institutions (OSFI) that will be in effect as of January 1st, 2018 intended to effect buyers with “uninsured mortgages.” (Generally, when someone puts a down payment of more than 20%, they don’t require mortgage insurance. Therefore, these mortgages are uninsured.)

Buyers with uninsured mortgages will need to prove that they can afford payments based on the greater of:

  •  the Bank of Canada’s five-year benchmark rate (currently 4.89% as of Oct 19th 2017)
  • or their contract mortgage rate plus two percentage points

What does this mean to you? The properties that you can qualify for will now be lower in value. Take a look at this example:

Mortgage rate comparison website published a scenario looking at the impact of the stress test rule on a family earning $100,000 putting down a 20% down payment on a 3.09% 5-year fixed rate amortized over 25 year. Under the current rules, that family could qualify for a house worth $706,692, but after the new rules take effect in 2018, that family would only qualify for a house worth $559,896 based on a 4.89% stress test.

If you wish to get mortgage financing or are looking to refinance before these new stress test changes go into effect, please message me ASAP!

The additional changes, which are directed at federally regulated lenders, stipulate that:

  • Lenders will be required to enhance their loan-to-value measurement and adhere to appropriate LTV ratio limits “that are reflective of risk and are updated as housing markets and the economic environment evolve.”
  • Financial institutions will be prohibited from arranging a mortgage, or combination of a mortgage and other lending products, with another lender where the intent is to circumvent LTV ratio limits. But mortgage agents/brokers can still do it, so long as the borrower qualifies for both mortgages (i.e., their debt ratios meet both the first mortgage lender’s and second mortgage lender’s guidelines).

If you are looking to refinance leaving less than 20% equity in your property, you need to find a mortgage agent who will help you do that. I have access to numerous second mortgage lenders who are comfortable with high LTV ratios. This means you can access more money. Message me today for a personalized solution to your unique situation.

First Time Home Buyers’ Tax Credit

You could get a Home Buyers’ Tax Credit (HBTC) when you purchase your first home.

You could get a Home Buyers’ Tax Credit (HBTC) when you purchase your first home.

The HBTC is calculated by multiplying the lowest personal income tax rate for the year (15% in 2009) by $5,000. For 2009, the credit will be $750.

You will qualify for the HBTC if all the below applies to you:

  • you did not live in another home owned by you or your spouse or common-law partner in the year of acquisition or in any of the four preceding years.
  • you intend to occupy the home as a principal place of residence no later than one year after it is acquired.

When you file your taxes, you’ll be able to claim your tax credit. No documentation is required, but it should be available if the Canada Revenue Agency requests it.

This is just one program that benefits first time home buyers. To make the most of your new purchase, you should speak to someone with experience in this field because you never know what extra benefits you can get. Contact me now to get a personalized solution to your unique situation.


Down Payment Requirements & Default Insurance

A down payment is the amount of money that a purchaser will be providing from his or her proceeds (not borrowed) towards the purchase price of the property being purchased.

In a conventional mortgage, the down payment is at least 20% of the purchase price. If the property you want to purchase is over $1 000 000, you must have at least 20% down.

However, you can purchase a property with as little as 5% down. For example, if your property is $400 000, you can purchase it with as little as $20 000 ($400 000 x 5%) down.

If your property is over $500 000, you are required to have a 10% down payment for the portion of the purchase price that is over $500,000. For the portion up to $500 000, only 5% is required. For example, let’s say you want to purchase a property for $600 000. For the first $500 000, you need $25 000 down (5% x $500 000). And for the remaining $100 000 ($600 000 – 500 000), you need $10 000 down (10% x $100 00). So your total down payment required is $35 000 ($25 000 + 10 000).

If you are putting less than 20% down, then the mortgage is considered “high-ratio” and mortgage loan insurance/mortgage default insurance is required. The premium is based on the total loan and the amount of down payment.

Here are CMHC’s fees:

Down Payment Premium on Total Loan
5-9.99% 4.00%
10-14.99% 3.10%
15-19.99% 2.80%

For most up-to-date numbers, visit the CMHC website (

For example, let’s say you are buying a $400 000 property and want to put 5% down ($20 000 = 5% x $400 000). Your mortgage amount = $400 000 – $20 000 = $380 000. Since you are putting 5% own, your premium is 4.00% of the total loan. So your default insurance premium is $380 000 x 4.00% = $15 200. You don’t have to pay the premium upfront. The premium is added onto your mortgage and amortized over the length of the mortgage. So your new total mortgage is $380 000 + $15 200 = $395 200.

The premiums in the chart are applicable when your down payment is from “Traditional Sources”. Traditional sources of down payment include: Applicant’s savings, RRSP withdrawal (under the Home Buyer’s Program),  proceeds from sale of another property, non-repayable gift from immediate relative, equity grant (non-repayable grant from federal, provincial or municipal agency), funds borrowed against proven assets, sweat equity (<50% of min. required equity), land unencumbered.

Non-traditional sources of down payment include: Any source that is arm’s length to and not tied to the purchase or sale of the property, such as borrowed funds, gifts and 100% sweat equity. If your down payment is from non-traditional sources, your premium is 4.50% of the total loan.

In addition to CMHC, Genworth Financial and Canada Guaranty are, also, default insurance providers.

Note that HST must be paid on the mortgage default insurance. This HST cannot be added to the mortgage loan, so it must be paid on closing.

Make sure down payment is in your bank account for over 90 days.

As you can see, default mortgage insurance helps more people purchase properties. For most properties, you only have to put 5% down to purchase a property. Additionally, the down payment can come from numerous sources. As a mortgage professional, I can help you through the ins and out of this process and answer any questions you have. Contact me today for a personalized solution to your unique situation.