Down payment requirements being lowered

Down payment requirements being lowered
VANCOUVER April 21 — 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. The new legislation is part of Bill C-37, expected to be proclaimed next week.

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.”

The new limit also affects individuals who intend to refinance their mortgages.

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,” said Catherine Adams, RBC's vice-president of home equity financing.

Under the existing Bank Act regulations, which have been in place for 40 years, a bank cannot provide a mortgage loan for more than 75 per cent of the value of the property, without having the customer purchase mortgage insurance. Bill C-37 raises the loan-to-value ratio requiring mortgage insurance from the current 75 per cent to 80 per cent.

MyMortgageBC.com note: This is an important development in the mortgage industry. We haven't seen changes in the bank act for 40 years and times have changed in regards to mortgages and home ownership and it's important for the government to recognize this. Bill C-37 will go a long way in helping the average Canadian get a mortgage on their home. The only people that will be concerned will be CMHC, Genworth and AIG insurance because now they'll only be collecting insurance premiums on 80% financing rather than 75% financing.