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.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net