Cmhc to Increase Minimum Down Payment to 10%

May 21, 2020

Canada Housing & Mortgage Corporation’s (CMHC) top boss made some comments this week that has raised speculation that big changes are headed our way.

Among many ominous predictions, the CEO suggested that CMHC should eliminate its 5% down payment program. This would lead to changing the minimum down payment to 10%.

Here’s what was said:

“We feel we need to avoid exposing young people (and through CMHC, Canadian taxpayers) to the amplified losses that result from falling house prices. Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent. (Our calculations include the mortgage insurance premium and the costs of selling the home if forced to do so because of unemployment or any other reason.) In comparison, a 10 per cent down payment offers more of a cushion against possible losses.”

The full & very revealing transcript can be read here.

Other highlights (or lowlights) of the meeting include:

  • CMHC estimates that 12% of Canadian mortgage borrowers have elected to defer their mortgage payments. The number of deferrals is expected to grow to 20% by September.
  • The risk that the economy doesn’t start back up quickly. Therefore, as many as 1 in 5 mortgages will be in arrears this fall.
  • Introduction of a new buzz word for the media to hype on “The Deferral Cliff” [duh, duh, duhhh] Which is this fall when all the 6 month mortgage deferrals end.
  • CMHC is anticipating a drop to home prices between 9% to 18% this year.
  • Pre-Covid Canada had one of the highest gross debt to GDP ratio at 99% in the developed world. By the end of 2020 that ratio is expected to exceed 130%. NOTE:  80% is considered to be acceptable.

This is all scary gloomy stuff and yet…

In my daily work, I’m still feeling and observing a lot of optimism from existing home owners and would be first time buyers a like. The psychology in the GTA hasn’t changed to one of pessimism. Actually, quite the contrary, there is an overwhelming attitude of opportunity and excitement.

This is what “could” happen not what “will” happen.

You have to keep in mind “who” and “why” this information is being reported. These remarks are worst case scenarios to prepare for doomsday scenarios. This is the CEO of a Crown Corporation who has to protect and politicize the interests of Canadians above all else.

These numbers are national numbers. Meaning that they take into account markets like Alberta or the East Coast. Places where the economic impact of the outbreak, especially relating to oil production, are very severe.

We are lucky to live in a market like Toronto which has proven many times over to be much more resilient than anyone predicted.

Saying goodbye to a 5% down payment

Honestly, I don’t see this as a big deal.
Keep in mind that for the past 2 years mortgage default insurers have required home buyers to pony up 10% down for purchases over $500k (sliding scale).

Does anyone remember the headlines back then? We thought the sky was falling. However, I don’t think anyone would argue that it had any significant impact on the market over the past 24 months.
For what it’s worth looking at my own book of business, over the past 12 months only 1.6% of my clients bought with a 5% down payment.

CMHC CEO’s remarks “Unless we act, a first time homebuyer purchasing a $300,000 home with a 5 per cent down payment stands to lose over $45,000 on their $15,000 investment if prices fall by 10 per cent etc…” doesn’t sound like a very good argument to me.

He’s posturing that it will save “young Canadians” from losing money. In reality, we should read it as saving “CMHC” from losing money.

Regardless of who loses money it’s not good.

I’m not sold that this strategy is really that helpful to mitigate risk and help Canadians. I think this is part of a long-standing initiative by CMHC to eliminate 5% down payment.

What to do if you were planning to buy with 5% down payment?

Act now. It will take a number of months for CMHC to enact such a change but I think it’s reasonable to expect that by the end of the year Canadian home buyers will require 10% or more to purchase a home.

Keep your chin up.

This is my 15th year as a mortgage broker. I’ve lived through the 2008 financial crisis, housing “bubbles” and all the changes and pull back of mortgage rules etc…  If there is one thing I’ve learned it’s that the media and experts tend to over exaggerate. And rightly so but it’s never ever as bad as they make it out to be.

You can get in touch with me here or book a call directly into my calendar below.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.