Real Estate

New mortgage rule will have implications for Toronto consumers

A new mortgage rule around down payments, which went into effect Feb. 11, 2016, will have some implications for potential home buyers, Toronto real estate lawyer Anar Dewshi tells

As Global News reports, Canadian house hunters now a face new rule requiring larger down payments on homes listed above $500,000. A buyer will now have to put five per cent down on the first $500,000, and 10 per cent down on any value above that amount.

“The changes are expected to have an impact on key real estate markets, but to what extent is up for debate,” the article states.

“This policy does not change the five-per-cent minimum down payment for properties up to $500,000,” says Dewshi, principal of Dewshi Law Practice;In addition, homes above $1 million are not affected and still require a 20-per-cent down payment.”

The new requirement is intended to: reduce housing-market risks by increasing borrower equity; protect the stability of the housing market and the economy as a whole; and protect the interests of taxpayers who ultimately back government-guaranteed mortgage insurance.

However, Dewshi says there will be implications for consumers — particularly in hot housing markets across the country.

“In Toronto, where house prices continue to increase, the requisite deposit will be substantially larger,” she says. “For new home buyers, it may mean delaying buying a home or borrowing money from family or friends.”

Dewshi notes there are some key considerations if family members are either giving or lending money to go towards a down payment to protect the purchaser from future estate liability issues.

“If you’re receiving money from your parents, for example, you should obtain a statutory declaration from the donors stating that the money is a gift for the purposes of a down payment for the purchase of real estate property,” she says. “You should also have the purchaser sign a statutory declaration stating that a portion/whole down payment is a gift.”

The new requirement may also affect mortgage qualifications, and some buyers may not be eligible to obtain a mortgage.

“If you are unable to obtain a certain mortgage amount, you can postpone purchase of home, buy a less expensive home or consider purchasing a house outside of the Greater Toronto Area, where purchase prices are relatively cheaper,” Dewshi advises.

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