New rules on Mortgages... are we confused yet?

Four Major Changes to Canadas Housing Rules

Mortgages can be one of the most confusing and stressful processes when we start our journey for a new home (which is why I highly recommend using a mortgage consultant who can have  ACCESS TO MULTIPLE LENDERS AND BANKS)

So the Liberal government decided to change the rules Again... Here are 4 changes that are coming October 17th. The first change will have the most impact on your approval rates. (thinking or looking to buy a home soon, you may want to act a little quicker before the change)

1. Expanding A Mortgage Rate Stress Test To All Insured Mortgages

"The stress test is aimed at assuring the lender,  that the home buyer could still afford the mortgage if interest rates were to rise." 

So this means if you want a mortgage, no matter what the down payment, you'll need to qualify at the benchmark rate (the Bank of Canadas five-year fixed posted mortgage rate) BUT (this is the good news)  your mortgage payments will still be at the best rate offered by the banks.

Should Doom and Gloom hit and the interest rates rises, the banks want to prevent people from defaulting on their mortgage, so they want to make sure you can still afford your payments.

Our mortgage broker  Diana Lee at  gave a great example on how it changes what amount we can qualify:

'Lets use an example of an individual who makes an annual income of $80,000/year. Using a 5yr fixed rate of 2.39% they would qualify to purchase a home for approximately $500 000.00 putting 5% down payment.

The new rules will change the amount the client will be approved for. With the same $80,000/year income and 5% down, the client will now only qualify for an approximate home purchase of $405 000.00. This will be because the qualifier rate used will be the Bank of Canada benchmark rate of 4.64%.'

2. New Restrictions On When The Government Will Provide Insurance For Low-Ratio Mortgages.

(this one doesn't affect the majority of us so we're not going to dissect this rule too much)

"The new rules restrict insurance for these types of mortgages based the amortization period must be 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property will be owner-occupied."

The reason for this, is to lower their risk of becoming responsible for any residential mortgages properties worth $1-million or more. Although this is mostly aimed at Vancouver and Toronto areas which have more of these mortgages in the market.

3. New Reporting Rules For The Primary Residence Capital Gains Exemption

"Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income."

this means we still get the Tax-free break from any income we make from the sale of our house.  BUT!!! We now have more paper work to do at Tax time! (YAY) So when we sell our home in the coming year we have to tell Canada Revenue Agency about it... 

Truthfully this rule is more aimed at foreign investors who are flipping homes in Canada and falsely claiming the primary residence exemption.

4. The Government Is Launching Consultations On Lender Risk Sharing.

"the federal government is on the hook to cover the cost of 100 per cent of an insured mortgage in the event of a default"

The Government doesn't' like having all this responsibility.. so they want Banks to share the risk. Bad news for us, banks have tempers and it could be taken out on us as home buyers...  keep an eye out for an increase in mortgage rates. (leading us back to point number 1)

There will always be changes to our banking and real estate rules, that's what make this world so exciting and crazy, thank goodness we have specialist to clarify all the confusing jargon that gets written.

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