Monday’s Federal Rule Change – What Buyers & Seller’s Need to Know

Latest News Nathan Lawrence 12 Oct

There has been much speculation and debate the past 10 days about the pending Mortgage Rules changes and the potential impact that those changes will have on the Real Estate Market, but more importantly on you as current/future home owners!  At the end of the day, these are significant lending changes, but the impact on the Canadian Real Estate market will takes weeks, if not months to really play out.  However, it is important to know that that the Canadian Mortgage lending market has seen numerous “significant” mortgage lending rule changes over the past decade…and what were the results of those changes?…The Canadian Real Estate Market continued to remain strong.

At the end of the day, here are the important takeaways that you need to be aware of as current/future home owners…

Changes to Mortgage Qualifying Guidelines

Effect Monday October 17th, all new mortgage applications will need to be qualified based on the Bank of Canada Posted rate.  As of today, the Bank of Canada Posted Rate is 4.64%.   Whereas previous to October 17th, 2016, 5 year fixed rate term mortgage applications would have been qualified using the contract rate (the actual rate the client was getting i.e. 2.39%).

The change to how home purchasers are qualified will have a direct impact on how much they can afford to purchase.  This will have the biggest impact to those purchasers which are currently shopping at the top end of their purchase price approval range.   The rule change will reduce a client’s Max Purchase price by approximately 20%.

If you have previously been pre-approved, make sure that you take the time to call your Mortgage Broker and chat with them about the rule changes.  It is important that you have your mortgage pre-approval updated based on the new lending guidelines.   Important Note:  Having a pre-approval prior to the October 17th deadline does not qualify you based on the old rules.  Avoiding the new rules is only possible for those that had a full mortgage approval prior to October 17th.

Capital Gains Changes –

If you were/are a Canadian Citizen or are considered to be a Canadian Resident based on CRA guidelines, at the time of your home purchase, then these changes will have no real impact on you.  You will now be required to report your Primary Residence for Capital Gains tracking purposes.  You would still have access to the Capital Gains exception rules.  **Please make sure to speak with your accountant for full clarification on how these changes could impact you**

If you are not a Canadian Citizen or are not a Canadian Residence based on CRA guidelines when you take ownership of your new home, then these rule changes may potentially have an impact on you at the time of sale.  ***I recommended that you seek advice from your accountant or tax specialist to determine the actual impact that this change may have on you***

Changes Coming to Mortgage Lending Guidelines – Federal Announcement

Latest News Nathan Lawrence 4 Oct

If you have watched any major Canadian News outlet over the past 24 hours, you have likely heard that the Federal Finance Minister Bill Morneau announced some rather unexpected changes to mortgage lending guidelines which will have a significant impact on Canadian Home Buyers.

Presently, the current lending rules for Default (CMHC/Genworth) Insured Mortgages in Canada requires that any home buyers applying for a 5 year fixed rate mortgage, must qualify for that mortgage based on a mortgage payment calculated at the rate being offered to the client.  Based on current mortgage lending guidelines, here is what a current mortgage qualifying scenario would look like:

 

  • Annual Household Income: 100,000.00
  • 5 Year Fixed Rate:  2.39%
  • Qualifying Rate: 2.39%
  • Amortization: 25 Years
  • Potential Max Purchase Price:  $525,000.00
  • Down Payment: (5%) $26,250

 

The new rules that come in to effect on October 17th 2016, would require that any home purchaser looking to qualify for a 5 year (or longer) fixed rate mortgage must now qualify for that mortgage based on a qualifying rate stress test.  The qualifying rate used for qualifying purposes will be the Bank of Canada Qualifying Rate, which as of today sits at 4.64%.   Here is what a home buyers new potential max purchase price will look under the new guidelines announced today:

 

  • Annual Household Income: 100,000.00
  • 5 Year Fixed Rate:  2.39%
  • Qualifying Rate: 4.64%
  • Amortization: 25 Years
  • Potential Max Purchase Price:  $425,000.00
  • Down Payment: (5%) $21,250

 

The effective impact on home buyers in Canada can and will be significant.  The scenario listed above shows how requiring home buyers to qualify based on the qualifying rate, rather than the contract rate, reduces the purchasing power of the buyer by upwards of 100,000.00.

 

 There are two very important dates to note with respect to these changes:

October 17th 2016   – Any mortgage application approved prior to this date, can qualify for a mortgage based on existing mortgage lending guidelines.  Any application submitted and approved on or after October 17th, 2016 will be required to qualify for a mortgage based on the newly announced mortgage lending guidelines

March 17th, 2017  –  Any mortgage application that is approved prior to the cutoff date of October 17th 2016, must also close on or earlier than March 17th 2017.   If you are approved for a mortgage prior to October 17th 2016, however you do not take possession of your new home until after March 17th 2017, you will be required to qualify based on the new lending guidelines.

 

Once again, these changes will impact any Default Insured Mortgage Application anywhere in Canada.  A default insured mortgage is defined as a mortgage where the client has less than 20% of the purchase price as their down payment.  Any mortgage in Canada with less than 20% down must be insured by a Default Insurance Company such as CMHC or Genworth.  These recent changes will directly impact those application.

 

If you are currently in the process of house hunting or are thinking about house hunting, it is important to touch base with your Mortgage Broker to find out more about how the changes may impact your pre-approval or application.

 

**The Above mortgage scenarios assumes the following:  1. the clients are not carrying any monthly debt requirements outside of the potential mortgage.  2. It also assumes a max Gross Debt Servicing of 34% 3. Down payment of 5% of the purchase price coming from their own resources.  4. That the clients have adequate credit and credit history.

Down Payment Rules Changed

Latest News Nathan Lawrence 11 Dec

Its official.  New Down Payment Rules are going into effect beginning on February 15th 2016.  After years of debate, discussions and rumors about possible changes to the minimum down payment requirements in Canada, the Federal Government this morning announced what those changes will be.   Their goal? To help protect the housing markets in Canada’s hottest real estate markets (Vancouver & Toronto) from potential market swings that would negatively impact a home owners’ equity stake in their home.

The new rules outlined this morning by Finance Minister Bill Morneau will mean an increase to down payment requirements for house hunters that are purchasing a home worth more than $500,000.  A down payment of 10% will required for the portion of the property greater than $500,000.  So here is how it will work:

For Home purchases equal to or less than $500,000 nothing will change.  The minimum down payment will remain at 5% of the purchase price.

For Home Purchases greater than $500,000, here is how the change will impact you:

Assuming a purchase price of $700,000.  A minimum down payment of 5% will be required on the first 500,000.  Followed by a minimum 10% on the remaining amount:

5% Down Payment on $500,000 = $25,000

10% Down Payment on $200,000 = $20,000

Total Down Payment on $700,000 = $45,000

Under the previous down payment requirements the down payment would have been $35,000.  The new rule changes have now resulted in an increase of $10,000 to the down payment for a purchase of $700,000 home.

While these changes will have a significant impact to house hunters in markets like Vancouver, Toronto and Calgary, the changes will have a much smaller impact on the Thunder Bay market given that our average sale price here is well below $500,000.    There will be some house hunters that will be impacted in Thunder Bay by these changes; however, most of the house hunters in Thunder Bay above the $500,000 price point tend to be repeat buyers.   With our strong real estate market these past few years, home owners have realized very modest gains in property values on their current home. When they sell their current home and use that equity for their next purchase, the new down payment measures will likely not hinder their next planned purchase.  For first time home owners that are looking at a homes valued at more that $500,000, it will mean that they will need to plan for a  larger down payment.

If you have been pre-approved for financing but have not yet purchased a home, we would suggest that you take a few minutes today to contact your Mortgage Specialist to see how these changes will impact your plans and pre-approval.

If you have any additional questions about how these changes will impact you personally, please feel free to contact our Team as we would be more than happy to help answer any questions you have.

 

Great News for Ontario Home Buyers …

Latest News Nathan Lawrence 1 Dec

For the past month, the Ontario Government has been talking and thinking about expanding the Land Transfer Tax to allow municipalities to charge home buyers a Land Transfer Tax on top of the tax already charged by the Ontario Government.

A change like this, would have instantly made it much more costly and more difficult for house hunters to buy a home.  For the past month, countless industry professionals (locally this includes the local Thunder Bay Real Estate Board and Salespeople) have been working hard to protect buyers by working to lobby our Provincial Leaders.

SUCCESS!  This afternoon, reported in the National Post… (See full article here) has announced that the Ontario Government had decided to not move forward with their plans to allow municipalities to also charge Land Transfer Tax.  This is a huge win for home owners and future home owners in Ontario.

Have any additional questions, please feel free to contact me anytime.

Buying a Home Might Get More Expensive in Ontario …

Latest News Nathan Lawrence 29 Oct

By: Nathan Lawrence

If you’re a house hunter or are planning in the future to be buying a home, the costs to close a house purchase might be getting more expensive.  Earlier this week, the Ontario Government stated that they are moving forward with their plans to allow municipalities with the ability to charge home buyers a municipal land transfer tax.  This potential new land transfer tax would be above and beyond the current Ontario Land Transfer Tax that home buyers are currently required to pay as part of their closing costs.

As the Ontario Government looks at news ways to address revenue challenges facing communities across the province, this is a quick way to generate revenue for municipalities across the province.  This is NOT good new for home owners and house hunters.  This is something that the Ontario Real Estate Association (OREA) has been working hard to advocate against the Ontario Government moving forward with their plans to increase the cost burden to home buyers. It has the potential to turn Ontario into the province with the highest closing costs on Real Estate transactions in North America.

For more details about the potential changes, take a few minutes to read the full article posted by the Financial Post. http://business.financialpost.com/personal-finance/mortgages-real-estate/ontario-about-to-double-homebuyers-burden-by-allowing-municipalities-to-charge-land-transfer-tax

The Election & Your Mortgage

Latest News Nathan Lawrence 20 Oct

By: Nathan Lawrence

Well you woke up this morning and it’s a new day…and there is a new Government.  Looking back over the last two months of the campaign, here is what our new Majority Liberal Government promised with regards to housing/mortgage market under the leadership of Prime Minister Elect Justin Trudeau.

  • They would focus on ensuring that there would be more affordable housing for Canadians. They will work to build new infrastructure or renovate existing housing.
  • They would modernize the existing Home Buyers Plan to help Canadians impacted by sudden or significant life changes.
  • They would direct CMHC to provide financing programs designed to support the construction of new, affordable rental housing for middle- and low-income Canadians.
  • They will conduct a review of escalating home prices in high-priced markets like Toronto and Vancouver.
  • They would restore the mandatory long-form census to ensure that decisions on housing are made using the best and most up to date data available.
  • They will provide tax incentives to grow and renovate the supply of rental housing across Canada.

 

Over the next few weeks/months, we will likely start to see additional information about the programs start to roll out as the new Liberal Government transitions into Parliament.   For more details about their plans, visit http://www.liberal.ca/realchange/affordable-housing/