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Required Down Payment Reduced from 25%->20%!
The Canadian Government has introduced legislation that will reduce the mandatory amount that home buyers have to put down on a home to avoid the expensive CMHC fees. Home buyers can now put down 20% instead of 25%.
Here is the article from The Globe and Mail:
…Canada’s big banks are applauding new legislation that lowers the required down payment for mortgages. The federal government said Friday it is lowering the minimum down payment requirement for mortgage default insurance from 25 per cent to 20 per cent
…Bank of Montreal says home buyers could save an average of $2,500 in insurance premiums, based on an average home price of $300,000. “We see a number of customers scrambling to meet the 25 per cent down payment, in order to avoid paying the insurance premium,” said BMO vice-president Cid Palacio. “These changes will allow those home buyers to reduce their down payment and get into their new home faster.”
…Royal Bank of Canada said a recent survey it did found 39 per cent of Canadians have borrowed against the equity of their home, by either refinancing their mortgage to a larger amount, or by taking out a home equity line of credit. “Now, with refinancing at 80 per cent, we’re making an extra 5 per cent equity available to our clients for their financing needs,”
This also means that people now using the Smith Manoeuvre have access to 5% more of their equity! Cannon_Fodder, time to re-work those spreadsheets! :)
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19 Comments, Comment or Ping
1. vr6man22
can some explain how the HELOC that attach to the mortgage will work now.
when using it with smith man.
Will the bank lend 75% or 80% or what?
Apr 26th, 2007 @ 12:46 pm
2. FrugalTrader
You should be able to get a HELOC for 80% of appraised value of your home without paying CMHC fees.
Apr 26th, 2007 @ 3:36 pm
3. vr6man22
I wish Rbc did appraised value and not purchase price.
Apr 26th, 2007 @ 4:30 pm
4. FrugalTrader
Once your house is established, i’m sure that RBC would not have a problem re evaluating the appraised price of your home. They may charge extra legal fees for the appraisal. HELOCs from banks are usually based on the appraised value of the home. When you first purchase a home, and get a HELOC attached, then yes, they would base it on the purchase price.
Apr 26th, 2007 @ 10:03 pm
5. FinancialJungle
“HELOCs from banks are usually based on the appraised value of the home.”
That’s correct. 3 years ago, I was considering opening a HELOC with Royal Bank, but at that time, their were using purchase price instead of market value. Good news is, they’re using “appraised value” now.
Apr 26th, 2007 @ 10:38 pm
6. Cannon_fodder
The good thing is my SS doesn’t have any dependency on downpayment percentage. In fact, one could establish an initial LOC of any value.
Apr 26th, 2007 @ 11:54 pm
7. Mike
I bank with TD (for now) - my heloc was set at the 74% of purchase price which made sense since I had just bought the place. My mortgage guy said that if they appraised it for more than 100k over purchase price (we did a major reno) then there would be no fees for the appraisal and subsequent raise of heloc max.
Apr 27th, 2007 @ 12:20 am
8. Mike
74%? what was I thinking…it was 75%.
Apr 27th, 2007 @ 12:22 am
9. vr6man22
hmm as of last month talking to RBC, lady said it is on the purchase price of home ,and not the appraised value of home.
IF anyone knows for a fact that this is different then Rbc will be getting a call from me.
Apr 27th, 2007 @ 1:36 am
10. FinancialJungle
According to their Home Equity Calculator, they’re using the appraised value, but web site may be wrong. I had the same problem too several years back, and ended up with the President’s Choice.
http://www.rbcroyalbank.com/RBC:RjF2MI71JsYAAd5Ej88/cgi-bin/personalloans/equity/calc.cgi
Apr 27th, 2007 @ 1:59 am
11. Mike
Why would they use the purchase price unless the house was recently purchased? I find it hard to believe that the bank wouldn’t want to be able to lend more $$ by using the appraised value in the situation where the house has appreciated over the years.
vr6man22 - what is your situation? Is your house/condo worth significantly more than the purchase price?
Apr 27th, 2007 @ 11:57 am
12. David
My experience was opposite vr6man22. When I went to RBC to change my mortage product about 2 years into a five year term, I took a copy of our Tax Assessment, showing the increase since two years previous. She not only accepted my valuation, she further adjusted it for the increase in value that had occurred over the 9 months post appraisal. It may have helped that I have had a lengthy relationship with the Bank, and have worked with this individual on many of the products I have purchased, so they have a good comfort level with my banking habits.
I echo Mike’s question — are you in a recently purchased home that has appreciated between purchase and occupancy? If so, and you are a new customer, the bank may wish to see your payment habits before committing a greater level of loan, especially as you may be using a ‘paper profit’ as security.
Apr 27th, 2007 @ 5:35 pm
13. vr6man22
new home , not finished yet.
NOT recently purchased (long delays)
price has gone up 25-30 k, and Rbc Lady said that “they only give the Heloc on the purchase price and not the appriased value, but in 3-4 months after you move in, if you want we can re due the papers , get an appraise on the house and up the heloc BUT you pay the fees.”
So not sure how to approach the bank now.
Apr 29th, 2007 @ 1:10 am
14. David
So you are asking the bank to increase the loan value of a home that is not ready for occupancy. Since they have no certainty on the completion, or whether the finished value will be equal to the proposed value (i.e. will the finished basement be complete, etc.) You are asking them to increase the value on something that does not really exist. In addition, until a home is occupied, most lenders consider the sale price to be the appraised price. Many others have asked this question in other fora before, and found the same answer. Thus, I would think that they are being reasonable and consistent with others’ experience. I’d suggest that you look at a six month term, and renegotiate the loan at that time
Apr 29th, 2007 @ 1:58 pm
15. vr6man22
that is not what I’m asking.
I asked the bank when the closing date happens,
(firm date now) basicly can we up the Heloc for more cause the house is NOW worth more.
Although the six month term would be a good idea ,
I wouldn’t think to do this with the low rate through the builder i have. thanks
Apr 29th, 2007 @ 2:47 pm
16. Mike
vr6 - I think you just have to be patient and get the HELOC raised when you can. Banks work a certain way and that’s the way they work.
Apr 29th, 2007 @ 10:28 pm
17. vr6man22
Anyway I am stuck with them for now, but am looking at different options for use with the SM.
thanks for all your help everyone.
Apr 29th, 2007 @ 11:07 pm
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