Simplifying Homeownership Dreams: Is a Million-Dollar Home Within Reach in Canada?

Owning a million-dollar home is no longer just a benchmark for extravagance; it’s now a gateway to decent properties equipped with luxurious amenities.

The million-dollar label isn’t one-size-fits-all. In Canada’s diverse real estate terrain, the specific worth of a million-dollar property is as unique as a fingerprint, influenced by several important factors. Picture this: not too long ago, a million dollars could hand you the keys to a detached home in a wealthy enclave of one of Canada’s buzzing metropolises. A dream, right? Fast forward to today, and the landscape has shifted drastically. In 2022, the mean price of a Canadian home hovered at around 704,000 Canadian dollars. Projections indicate a potential 6 percent dip in home prices for 2023, followed by a 3.5 percent rise in 2024. This trajectory suggests that by 2024, the average Canadian home price will be approximately 685,000 Canadian dollars. What once seemed like a huge goal is now the new normal. Average home prices in Toronto and Vancouver have rocketed past the million-dollar mark, and other major cities have also witnessed significant spikes.

Key Takeaways:

  • Minimum 20% Down Payment: Canadian regulations mandate a substantial down payment for high-value properties, seeking a down payment of at least 20% of the purchase price.
  • CMHC Mortgage Insurance Exclusion: When your home’s price surpasses the million-dollar threshold, CMHC mortgage insurance, which aids borrowers with smaller down payments, is no longer available, leaving it upon you to secure financing.
  • Higher Interest Rates for Uninsurable Mortgages: Lenders often charge elevated interest rates for homes valued over $1 million due to the increased risk associated with these loans, making it imperative to carefully consider your financing options.
  • Household Income Expectations: A high household income serves as a key qualifier, reflecting your ability to manage the financial commitment of a million-dollar property.
  • Limitations of First-Time Homebuyer Incentive: The government’s incentive program has income restrictions that may disqualify you from its benefits if you’re pursuing a million-dollar property, particularly in certain high-cost urban centers.

Essential factors to consider before moving forward

In securing a million-dollar mortgage, several crucial factors come into play. These factors are important for both lenders and borrowers to consider, ensuring a successful and sustainable financial journey:

  • Creditworthiness: Lenders scrutinize your credit history with laser precision. A stellar credit score is your golden ticket to favourable loan terms. It demonstrates your reliability in managing debt, and for a million-dollar mortgage, reliability is paramount. An inadequate credit report can slam the door on your homeownership dreams faster than you can imagine.
  • Gross Debt Service Ratio: It is your financial compass when considering homeownership. It’s a critical metric that helps you and the lender gauge your ability to shoulder the monthly expenses linked to your home. Here’s the breakdown of what GDSR entails. Your lender conducts a straightforward calculation: They add up your annual mortgage payments, property taxes, heating costs, and 50% of condo fees (if applicable), then divide this sum by your annual household income. Your GDSR must clock in at less than 32% to secure a mortgage.
  • Down Payment: When dealing with million-dollar properties, lenders often expect a substantial down payment. This reduces their risk and demonstrates your commitment to the investment. The days of minimal down payments are over when you’re in the million-dollar league. Be prepared to bring a significant chunk of the purchase price. Accumulating funds for a mortgage down payment poses challenges, and Canadian regulations dictate that properties priced above $1 million necessitate a down payment of at least 20% or more. To ensure a secure financial transaction, it’s essential to set aside $200,000 for the down payment, with an additional $40,000 earmarked for closing costs when purchasing a home valued at $1 million.
  • Property Appraisal: Property appraisal is the essential process of evaluating a property’s value to ensure that it aligns with the loan amount. It acts as a safeguard for both parties involved in the mortgage transaction, contributing to the investment’s overall financial health and stability. Lenders often have specific loan-to-value (LTV) ratio requirements, calculated based on the property’s appraised value. If the appraised value falls short, the borrower may need to make a larger down payment to meet the lender’s criteria.
  • Fluctuating Monthly Payments: It’s vital to recognize that your monthly mortgage payments might remain dynamic. They can be influenced by changing interest rates. If there is an instance that borrowers with variable-rate mortgages experienced increases in their monthly payments following interest rate hikes by the Bank of Canada (BoC). While this doesn’t always happen, it’s a possibility you should be prepared for. Consider whether you’d still comfortably manage your million-dollar home if interest rates rose by 2% to 3%. This foresight can help you avoid future financial stress.
  • Ineligibility for Government Incentives: If you were hoping to benefit from the Canadian government’s first-time homebuyers incentive to assist with your down payment, there’s a significant hurdle to consider. This incentive boosts first-time buyers by providing 5% to 10% of their home’s purchase price towards the down payment. However, there’s an income threshold for eligibility. To qualify, household income must fall below $120,000 (or $150,000 in certain high-cost cities like Toronto, Vancouver, and Victoria). Given that million-dollar homes usually come with a higher price tag, the income required to afford such a property would likely exceed these limits. Therefore, those capable of purchasing million-dollar homes may not benefit from this government initiative.

The Bottom Line

The path to owning a million-dollar home in Canada is paved with possibilities and challenges. While it’s undeniably an achievable dream for many, it comes with essential considerations, including a substantial down payment, a robust financial plan, and an understanding of the nuances of the housing market. You can confidently navigate the Canadian real estate market’s complexities with informed decisions, diligent planning, and a clear understanding of the factors involved.