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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***