Buying a house? New rules for mortgages now in effect

A house "sold" sign is shown in Oakville, Ont., Monday, July 23, 2012. (Richard Buchan/The Canadian Press)

TORONTO -- Canadians looking to buy homes between $500,000 and $1 million will have to put down larger down payments as new federal rules took effect Monday.

Under the changes, homebuyers must now put at least 10 per cent down on the portion of a home that costs more than $500,000.

Buyers can still put down five per cent on the first $500,000 of a home purchase. Homes that cost more than $1 million still require a 20 per cent down payment.

Phil Soper, president and CEO of Royal LePage, says the new rules aim to slow the breakneck pace of price growth in the red-hot markets of Toronto and Vancouver without affecting markets that are lagging, such as those in oil-dependent provinces.

"The problem with monetary policy is that it impacts the struggling Calgary market or the just fine Winnipeg market and the overheated Vancouver market in equal amounts," Soper said.

"If you lower interest rates, you lower interest rates for all. And that's not what the country needed. This change ... is the first attempt to recognize the fact that some parts of the country are in need of a mild tap on the break, while other parts of the country really need to continue to receive stimulus."

When the new rules were announced in December, Finance Minister Bill Morneau said he estimated they would affect about one per cent of the overall real estate market. Some industry observers predicted a surge in sales activity as homebuyers would look to pre-empt bigger down payment requirements.

Soper says real estate markets in Ontario, B.C. and Quebec have been "boisterous" in the first five weeks of the year -- but he says it's unlikely that the new mortgage rules are responsible.

"I think it has much more to do with clean sidewalks from a mild winter and low mortgage rates than it does with impending changes that tweak mortgage insurance regulations," Soper said.

"It's just not a big enough change to have materially impacted home sales volumes in the country."

Ottawa tightened rules for new insurable loans four times between 2008 and 2012, including upping the minimum down payment to five per cent and reducing the maximum amortization period to 25 years from 30.

Here are five things to know about the new rules:

Cough up the cash: Homebuyers now have to put at least a down payment of 10 per cent on the portion of the price of a home over $500,000. For anyone buying a home for $700,000 -- a common list price in Vancouver and Toronto -- that means the minimum down payment will rise to $45,000 from $35,000. Any home under $500,000 still requires only a down payment of five per cent.

Who's affected: Primarily those shopping for a home in Toronto and Vancouver. First-time buyers in those cities will feel the pinch since they'll be required to put down bigger down payments to get into the market. Those selling their homes in order to size up, especially in cities with hot housing markets, likely won't feel the pain since they've built up equity in those properties.

Impact: The influence the new rules will have over house prices is expected to be small, experts say, given their narrow reach. When he announced the changes in December, Finance Minister Bill Morneau said they are expected to affect one per cent or less of the real estate market.

Sales activity: Some analysts expected a surge in sales leading up to Monday's changes, saying they would lure homebuyers who wanted to avoid making the bigger down payments. Royal LePage CEO Phil Soper says sales activity has been "boisterous" in Ontario, B.C. and Quebec in the first five weeks of this year, but he credits a relatively mild winter and low mortgage rates.

Past measures: Four rounds of changes were made to tighten eligibility rules for new insurable loans between 2008 and 2012. Among them: the minimum down payment was increased to five per cent, the maximum amortization period was reduced to 25 years from 30 years and the maximum insurable house price was limited to below $1 million.