Changes to the Canadian Mortgage Rules
You may have heard about the changes to Canadian Mortgage rules. How will this affect you? What’s changed? As a mortgage broker in Oakville for many years, I’ve helped hundreds of clients secure mortgage solutions they can count on. I’ve highlighted the changes below.
Homebuyers seeking an insured mortgage, regardless of down payment, are subject to a mortgage rate stress test beginning Oct. 17th, 2016. Previously, if you had less than 20 percent down payment you would’ve been required to pass a stress test. You would also need mortgage insurance backed by the federal government through the Canada Mortgage and Housing Corporation. (CMHC)
This stress test measures whether buyers could still afford to make payments if mortgage rates rose to the Bank of Canada’s posted five-year fixed rate. Which is usually significantly higher than what typical banks or other lenders can offer. For instance, TD has a five-year fixed rate mortgage at 2.59 per cent. While the Bank of Canada’s “Benchmark” rate is 4.64 per cent. The stress test also sets a ceiling of no more than 39 percent of household income being necessary to cover home-carrying costs such as mortgage payments, utilities and taxes. For past announcements and policy, you can visit www.bankofcanada.ca
Before the changes, buyers with 20 percent down payment opting for mortgage insurance have escaped such scrutiny. Being able to obtain low-ratio insurance sold through two private insurers. Being backed by the federal government, subject to a 10 percent deductible. Starting Nov.30th 2016, new criteria for low-ratio insurance will take effect. To qualify, the mortgage’s amortization period must be 25 years or less, the purchase price less than $1 million, the property is owner-occupied, and the buyer must have a credit score of 600 or more. For more details you can visit www.cmhc-schl.gc.ca
These new rules also come with major tax implications. Beginning this tax year, all home sales must be reported to the Canada Revenue Agency. (CRA) The gains from sales of primary residences will remain tax-free. However, the government is aiming to block foreign buyers from purchasing and flipping homes while falsely claiming primary residence. Which creates an exemption from capital gains tax.
Whether you’re looking at buying a new home, investment property or refinancing an existing property. Don’t worry, despite the changes you’re in good hands. Together we’ll review the best options and I’ll support you every step of the way. Through the application and closing process.
If you would like more information on how these rules directly impact you and your family, give us a call 416-898-7600 ext 288.