Changes to the Canadian Mortgage Rules

Once again we have Changes to the Canadian Mortgage rules. You’re probably wondering how the new changes will affect your ability to get a mortgage. Mortgages have always been complex that’s why I always recommend working with a licensed Ottawa Mortgage broker like myself.

Stress Test

Home buyers who are seeking an insured mortgage, are now subject to a mortgage rate stress test beginning Oct. 17th 2016. Regardless of how much they have for a down payment. Previously if your down payment was less than 20%, you would have been required to pass a stress test and have mortgage insurance backed by the federal government through the Canada Mortgage and Housing Corporation. You can visit their website by clicking here.

The new stress test is designed to measure whether the buyer could still afford to make payments if mortgage rates rose to the Bank of Canada’s posted five-year fixed mortgage rate. That rate 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%, while the Bank of Canada’s rate is 4.64% per cent. The test also sets a ceiling of no more than 39% of household income being necessary to cover home-carrying costs such as mortgage payments, taxes and utilities.

Low-Ratio Insurance

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 be less than $1 million, the property be owner-occupied, and the buyer have a credit score of 600 or more. Previously, buyers with more than a 20% down, opting for mortgage insurance have escaped such scrutiny. Being able to obtain low-ratio insurance sold through two private insurers, but backed by the federal government, subject to a 10 per cent deductible.

Tax Implications

These new rules also have major tax implications. Beginning this tax year, all home sales must be reported to the Canada Revenue Agency. Click here for their website. The gains from sales of primary residences will remain tax-free. The government is aiming to block foreign buyers from purchasing and flipping homes while falsely claiming the primary residence exemption from capital gains tax.

Despite the changes, whether you’re a first-time home buyer, seasoned investor or refinance an existing property, you’re in good hands. Together we’ll review the best options based on your specific financial situation and discuss how the Changes to the Canadian Mortgage Rules effect you.. Contact us today.

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