Eric Tse Real Estate

Based on the article of Oct 3rd, 2016 from The Globe & Mail - Four Major Changes to Canadian Housing Rules.

 

For most buyers, #1, #2, and #4 is what you need to consider in your purchase.

 

1.) States that regardless if you put 5% to 19% for down payment, you will still be scrutinised by banks to see if you can afford to pay the mortgage and mortgage insurance (mandatory) if the rates went up on high-ratio mortgages. So you would need to qualify for the mortgage if it was today's rate of 2.25% or 4.64% in the future. Even if you qualify for the first and not qualify for the second then I don't think you will qualify for that mortgage from the bank. This is to reduce the amount of people over-leveraging themselves with debt load. This rules starts on Oct 17th.

 

2.) If you were considered for a low-ratio mortgage, 20% or more for down payment, then "The new rules restrict insurance for these types of mortgages based on new criteria, including that 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." This will apply on Nov 30th.

 

3.) "Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year (2016), the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency." - This was primarily designed so that people will not be declaring multiple properties as their primary residence and avoid paying the Capital Gains Tax, which what many foreign-owners were claimed to do.

 

4.) This one has a potential to affect EVERY mortgage holder for any banks as the risk for default on payment is on the govt to cover them with their promise (CMHC) and the banks have none. Once this new change comes about then even banks will be at risk if their borrowers default, so if that is the case banks may raise their mortgage rates to cover their 'butts' in case this scenario ever comes true. This rule is not yet implemented as it is so new and the govt needs to 'consult' with the banks and Bank of Canada on what is considered 'reasonable'.

 

Overall to summarize it, if you the buyer have less then 20% for down payment then you would want to purchase a place before the rules comes into affect in 12 days (Oct 17th)(including have subjects removed before then, specifically securing the financing from banks). If you have 20% or more for down payment then you will need to have at least a credit score of 600 to qualify, if so then this rule implementation date will not apply to you.


Happy Purchasing!

 

Eric

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Eric Tse Real Estate

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