More mortgage rule changes

On October 3, 2016, more rule changes were announced from the Department of Finance:

  • Bring consistency to mortgage insurance rules by standardizing eligibility criteria for high- and low-ratio insured mortgages, including a mortgage rate stress test;
    • The mortgage stress test is requiring all borrowers, that have less than 20% down payment, to be able to qualify using the Benchmark qualifying rate vs. the actual interest rate
    • By today’s standards, that means the difference between qualifying on a 5-year rate of 4.64% vs. a 5-year fixed of 2.39% today
    • Assume this scenario:
      • Purchase price of a condo is $300,000
      • 5% down payment ($15,000)
      • $500 in other debt payment obligations
      • $2500 annual property taxes
      • $300 monthly condo fees
      • $125 monthly heating
      • Current 5 year rate used to qualify over 25 year amortization (2.39%)
      • The interest rate you will pay does not change, but the way you need to qualify does –
        • Income required before: ~$65,000+
        • Income required after: ~$75,000+
  • Improve tax fairness by closing loopholes surrounding the capital gains tax exemption on the sale of a principal residence; and,
    • Aimed at Vancouver and Toronto markets mainly, this change is to make sure that the Capital Gains tax exemption on a primary residence is not abused by either residents or non-residents buying and selling a primary residence within the same year
  • Consult on how to better protect taxpayers by ensuring that the distribution of risk in the housing finance system is balanced.
    • Translation: there may be more changes yet to come!

Some good news – anyone who already has a mortgage, or who has already applied for mortgage insurance, is exempt from the new rules, which will formally kick in on October 17, 2016.

Conclusion: There could be a quick rush by some to get in and have an approval prior to the change date, as the crunch will be felt by many first-time buyers. Also, if you are looking to sell and qualify for a new mortgage, you may also be subject to these rules! Contact a Mortgage Broker to review your situation and guide you accordingly.

 

Mark Brennan
Mortgage Broker

 

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Down payment increasing for homes over $500,000

Today, Finance Minister Bill Morneau, announced that the government is increasing the down payment requirements for homebuyers seeking to purchase properties over $500,000 up to $1,000,000 effective February 15, 2016. The move is designed to cool down the real estate market in Toronto and Vancouver, but could also have some effects here locally.

The main consideration will be regarding the down payment amount will increase. This change is only for home purchases, and will not affect existing homeowners. What is important to note is that the new rule only applies for the amount in excess of $500,000.

Conclusion: This may spur an early spring market for homes in that price point in an effort to get ahead of the rule change. Morneau had noted that the change will affect only about “1% or less of the population” in a news conference today. The plus side is you are putting in more towards your purchase, and will be building equity faster.

Mark Brennan
Mortgage Broker

Image courtesy of Stuart Miles at FreeDigitalPhotos.net