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New Mortgage Rules

New Mortgage Rules came into effect on October 17.  Here are the basics of the new mortgage rules and what they mean for you…

High Ratio purchases will be “Stress Tested”:

When a buyer has a down payment of less than 20% of the purchase price, this is considered a High Ratio purchase and must be insured by one of Canada’s three insurers, which are CMHC, Genworth or Canada Guaranty.  All High Ratio mortgage terms must now be “stress tested” or qualified using the Bank of Canada benchmark rate, which as of today is 4.64%.  The stress test effectively reduces a buyer’s purchasing power by approximately 20%.

If you are feeling concerned, there are a few solutions for buyers who do not qualify under this new rule:

  • Increase down payment to make up the difference in qualification amount
  • Add a qualified co-borrower to the application (someone with good credit and income)
  • Purchase a lower priced property

Portfolio Insurance must follow same qualification rules as High Ratio:

Lenders that use Portfolio Insurance (non-bank lenders) for mortgages with down payments of 20% or more must follow the same qualification rules as High Ratio.  The property being purchased must be owner occupied, and cannot be a rental or an investment property.  The effects to buyers under this rule are:

  • Limits options for difficult to place purchases
  • Limits ability to refinance an existing property for down payment on another property purchase
  • Eliminates competition, allows banks to charge higher rates
  • Limits options for purchasing multiple rental properties under residential financing terms

Capital Gains Exemption for sale of Principal Residences to be reported on income tax returns:

A sale of a principal residence must now be reported on income tax returns, effective for the 2016 tax year.  Principal Residence Exemptions (PRE) will be claimed upon tax filing.  You are only allowed to claim 1 PRE per year and the property must be owner occupied at the time of sale.  If you are uncertain about your PRE eligibility, we encourage you to speak with your accountant or tax preparer.

What is the reason for the New Rules?

“These new rules are being put in to place to protect the financial security of Canadians and support the long term stability of the housing market in Canada.”

If you are concerned about anything surrounding the new rules, how they affect you directly, and what your options are moving forward, please call Your Island Mortgage Team for assistance: 250-898-8821.

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