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The Mortgage Centre Oct 12 2016
Why is the Department of Finance implementing these new changes?
These new regulations are aimed at protecting the financial security of Canadians and supporting the long term stability of the housing market in Canada.
CHANGE: Mortgage Rate Stress test to all insured Mortgages
What is it?
Currently insured mortgages with a term of less than 5 years, and/or a variable rate mortgage had to qualify on the Bank Of Canada (B.O.C) rate. Under the new Department of Finance regulations, all insured mortgages, regardless of term (fixed or variable) will now have to qualify on the B.O.C rate.
How does this affect a home buyer with less than 20% down payment?
The biggest effect will be on the amount that the home buyer will be able to qualify for. Previously, the five year fixed qualified at the lender contract rate. Now, the home buyer must qualify at the Bank of Canada Rate.
Previously, for example, a five year fixed mortgage at 2.39% rate, was qualified at a 2.39% rate, under the new rules a five year fixed rate mortgage at 2.39% must be “stress tested” by qualifying at the B.O.C posted rate (Currently 4.64%) The net result is an approximate 20% reduction in the amount of mortgage money available.
How does this affect a home buyer with a down payment of 20% or more?
There is no significant impact anticipated for home buyers placing 20% or more down. There are many different options and there are
still a variety of solutions for the majority of home buyers.
Do I still have the option to refinance my home?
Yes, home buyers will still have the ability to refinance up to 80% of the value of their property. Specifics may differ from lender to lender.
CHANGE: Restricted insurance for low-ratio Mortgages
What is it?
Mortgage loans that Lenders insure for conventional mortgages will be required to meet the eligibility criteria that previously only applied to high ratio insured mortgages.
The 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% of home buyers income and a total debt service (TDS) of 44% calculated by using the Bank of Canada conventional 5 – year fixed posted rate.
CHANGE: New Reporting rules for the primary residence capital gains exemption.
What is it?
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.
Who does it affect?
Everyone who sells their primary residence will have a new obligation to report the sale to the CRA; however, the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.
Why?
While officials say more data is needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.
Click here for: The Mortgage Centre Qualifying Mortgage Chart