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.
© Canadian Press
