November Issue #109
www.thenewsyneighbour.com
by Jason Eldridge
Well it didn’t take the Finance Minister and the
Federal Government long to announce their latest round of policy changes when
it comes to qualifying for mortgage financing. The only real difference this
time around, was that there was virtually no warning and only a couple of weeks
until the new rules would be implemented. Given the significance of these
changes, especially to first time home buyers, it is important to examine these
changes and their potential impact.
In an effort to stabilize an “overheated” housing
market, primarily in Toronto and Vancouver, the Federal Government announced
these changes with the intention of protecting the financial security of
Canadians, supporting the long-term stability of the housing market nationally,
and tweaking the capital gains tax rules that are enforced with the sale of
existing properties.
Between 2008 and 2015, there have been five rounds of
changes made to the eligibility rules, aimed at encouraging insured borrowers
to build and retain housing equity, and take on mortgage debt that they are
able to service over different economic cycles.
Effective this October 17th,
all high-ratio insured homebuyers must qualify for mortgage financing based on
the greater of their contract mortgage rate or the Bank of Canada's
conventional five-year benchmark rate. This requirement will also be extended
to low-ratio insured mortgages effective November 30, 2016. Although this
fundamental change may come as a surprise to many, this requirement has already
been in place for high-ratio insured mortgages applications where the client
has either wanted a variable interest rates or fixed interest rates with a term
of less than five years.
Qualifying for a mortgage by applying the typically
higher Canadian Benchmark rate when calculating a borrower’s gross debt and
total debt service ratio will serve as a “stress test” for homebuyers. What this
change hopes to do is provide new homebuyers a buffer to be able to continue
servicing their debts, should interest rates rise, or if there is a reduction
in household income. So what does this mean to first time and repeat buyers? On
average, by having to qualify for mortgage financing using the 5 Year Canadian
Benchmark Rate, the maximum purchase price will drop by approximately 21% given
existing 5-year contract rates.
If you are wishing to restructure or refinance your
existing mortgage or purchase a property with at least 20% of the purchase
price to put down, similar qualifying rules will apply in many cases. Many
lenders 'Back-end Insure' mortgages with more than 20% down. As of November 30th
of this year, these lenders who use portfolio insurance and other discretionary
low loan-to-value ratio mortgage insurance will have to meet the eligibility
criteria that previously only applied to high-ratio insured mortgages.
With that being said, homeowners with an existing
high-ratio insured mortgage, including those renewing or transferring an
existing high-ratio insured mortgage to another lender, are not affected by
this change, as high-ratio mortgage insurance spans the life of the mortgage.
Finally, the proposed tax measures announced by the
Government would improve tax fairness and the integrity of the tax system. This
would better ensure that the principal residence exemption is available only in
appropriate cases, and in a manner consistent with the Canadian resident and
one-property-per-family limits.
As always, I welcome any questions or comments you may
have regarding the information contained in my articles. Until next month…this
has been a Mortgage Moment with your Mortgage Mogul.
No comments:
Post a Comment