3 Major Changes You Need To Know About Mortgages

Date Posted: 15/11/16

1. Stress Test

As of October 17th a "Stress Test” will be applied to all insured mortgages. Now, all insured mortgages, regardless of term (fixed or variable) will have to qualify on the “benchmark rate”, which is currently 4.64%. What’s the issue? Qualification. Before these changes, lenders were able to qualify any 5 year fixed rate (or longer), high ratio mortgage on the contract rate, which was, for example, 2.39%. NOW, they have to qualify the same borrowers at 4.64%. The net result is an approximate 20% reduction in the amount of mortgage a buyer will qualify for.

2. Low- Ratio Insurance Rules

As of Novemver 30th new criteria for low-ratio/conventional mortgages will include the following requirements:

• Property must be owner occupied - rental properties are now excluded,

• A maximum amortization of 25 years,

• A maximum property purchase price of, or below $999,999.99,

• Minimum credit score of 600

• Maximum gross debt service (GDS) of 39% and a total debt service (TDS) of 44% calculated by using the Bank of Canada conventional 5 – year fixed posted rate.

What does this mean for me? Your million dollar properties have fewer options when it comes to mortgage financing. As all non-bank lenders need low-ratio insurance on their conventional mortgages, we have only the Banks for resources for these big mortgages. Does this mean that we no longer have access to financing for million dollar mortgages and rental properties? No, it just means there are fewer options right now. Many of our non-bank lending partners are still able to service these types of mortgages. However, we expect that it will come with added expense that will likely be handed down to the consumer.

Who loses? All Canadians are going to be impacted by these changes. The net result of less competition and, therefore choice for the public, means that in time, all people will eventually be paying higher interest rates on all of their mortgage products.

3. Capital Gain Exemptions

Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency. Everyone who sells their primary residence will have to report the sale to the CRA. This change is aimed at preventing tax exemptions for foreign buyers who are not entitled. While officials say more data is needed, Ottawa is responding to evidence showing foreign investors flipping homes in Canada and falsely claiming the primary residence exemption. How does this affect me? Home values. If foreign buyers are going to shy away from the Toronto market because of this new change, this may decrease demand and impact home prices.

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