MORTGAGE RATE STRESS TEST TO ALL INSURED MORTGAGES
An Insured Mortgage is when a home buyer has less than 20% down or the mortgage is insured by either Canada Mortgage and Housing Corporation (CMHC), Genworth, or Canada Guaranty. The insurance premium is passed onto the borrower. This insurance provides security to the Lender in the event of home buyer default.
A Non-Insured Mortgage is when a home buyer has 20% or more for a down payment and therefore is not required to pay mortgage insurance.
Currently insured mortgages with a term of less than 5 years, and/or a variable rate mortgage had to qualify on the Bank Of Canada (B.O.C) rate. Under the new Department of Finance regulations, all insured mortgages, regardless of term (fixed or variable) will now have to qualify on the B.O.C rate.
The biggest effect will be on the amount that the home buyer will be able to qualify for. Previously, the five year fixed qualified at the lender contract rate. Now, the home buyer must qualify at the Bank of Canada Rate. Previously, for example, a five year fixed mortgage at 2.39% rate, was qualified at a 2.39% rate, under the new rules a five year fixed rate mortgage at 2.39% must be “stress tested” by qualifying at the B.O.C posted rate (Currently 4.64%) The net result is an approximate 20% reduction in the amount of mortgage money available.
QUALIFYING RATE is the Bank Of Canada Conventional 5 year fixed posted rate. CONTRACT RATE is the rate offered by the Lender on the home buyer’s actual mortgage payments are based upon.
The challenge through the upcoming days will be to rethink strategy and get pre-approved again with the stress test factor included. Start the conversation to perhaps either increase down payment or start the process of looking for a new home within your NEW imposed budget.
There is no significant impact anticipated for home buyers placing 20% or more down
The new criteria for low-ratio/conventional mortgages will include the following requirements:
- Property must be owner occupied
- Rental properties are now excluded.
- A maximum amortization of 25 years
- A maximum property purchase price of, or below $999,999.99
- Minimum credit score of 600
- Maximum gross debt service (GDS) of 39% of home buyers income and a total debt service (TDS) of 44% calculated by using the Bank of Canada conventional 5 – year fixed posted rate.
NEW REPORTING RULES FOR THE PRIMARY RESIDENCE CAPITAL GAINS EXEMPTION
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, 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.
Everyone who sells their primary residence will have a new obligation to report the sale to the CRA; however, the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.
While officials say more data is needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.