Of Prime Interest: Home buying rules are tightened

Risk reduction in housing market recently introduced by federal government

  • Oct. 10, 2016 5:00 p.m.

New qualifying terms for Insured Mortgages in Canada will soon go into effect.

The federal government recently announced new rules that are targeted at reducing risks in the housing market by limiting foreign money into real estate and ensuring that borrowers take on mortgages they can afford.

Years of low interest rates and shifting attitudes towards debt and indebtedness have had an impact upon the housing market with house prices rising significantly in some markets.  The measures outlined below are designed to reinforce the Canadian housing finance system, to protect the long term financial security of borrowers and to improve tax fairness for Canadian homeowners.

• New qualifying terms for Insured Mortgages.

As of Oct. 17, 2016  ALL insured  mortgages will be required to undergo stringent ‘stress testing’ by lenders. Lenders require a mortgage to be ‘insured’ when the borrower’s down payment is less than 20% of the purchase price or the appraised value of the home.  Under the new rules, insured mortgages with a fixed term of 5 years or longer will be required to qualify at the 5 year benchmark rate of 4.64% even though their contract rate is significantly lower. This measure is aimed at ensuring that homeowners can meet their debt obligations should interest rates begin to rise.  Up to now, only mortgages with variable interest rates or fixed interest rates with terms less than 5 years were required to meet this rule.

Homeowners with an existing insured mortgage or those renewing existing insured mortgages will not affected by this measure and individuals who have already applied for mortgage insurance are also exempt from the new rules.

This will have a significant impact on buyers.  For example, a hypothetical borrower with an $80,000  annual income and a five per cent down payment could qualify today for a house worth $500,000 at a 5 year fixed rate of 2.49%.  But under the new rules, the same buyer could only qualify to buy a home worth $385,000.  The lender will still be willing to offer the lower rate but they are tested as though the mortgage rate is twice as high as it really is.

• New Qualifying Rules for Low Ratio Mortgages or Mortgages Backed by Portfolio Insurance

On Nov. 30, 2016, new rules will also come into effect for mortgages with 20% or MORE down which are backed by government insurance and sold as Mortgage Backed Securities or through the Canadian Mortgage Bond.  Mortgages that lenders now insure (at their cost) using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance, must meet the same criteria applicable to high-ratio insured mortgages. These measures which include refinances, renewals, amortizations over 25 years, rental or investment properties and mortgages over $1 million that can no longer be insured and securitized will severely affect our non-bank lenders and reduce and possibly remove any competiveness in the market as the big banks are not required to adopt these changes at this point.  This will quite possibly drive up rates for consumers and cut competition in the lending sector.  An existing mortgage holder who qualified in the past and is now facing mortgage renewal will be forced to renew with existing lender at the rate offered or move to a bank where competitiveness may no longer exist.

• Improving Tax Fairness and Closing Loopholes

Proposed changes to the tax rules would ensure that the principal residence capital gains exemption is not abused. The federal government will be tightening the loop holes in the tax laws that allow non-residents to buy a home in Canada, and then get a tax exemption to avoid paying capital gains when they sell the home by claiming it as their principal residence.   An individual who was not a resident in Canada in the year the individual acquired a residence will not be able to claim the exemption for that year.

Of Prime Interest is a collaboration of mortgage professionals  Trish Balaberde 250.470.8324 trishb@creativemortgage.ca;   Darwyn Sloat 250.718.4117 dsloat@creativemortgage.ca;   Christine Hawkins 250.826.2001 christine@creativemortgage.ca


Just Posted

RE/MAX Kelowna helps kids in need

The real estate company donated $5,000 to the YMCA of Okanagan

Seniors need to plan ahead for healthcare wishes

BC Notaries is advising seniors for National Seniors Day, Oct. 1.

Vehicle bursts into flames following crash in Kelowna

The two-vehicle collision happened at Banks Road and Harvey Avenue.

Kelowna’s strategy to address homelessness making headway says city

More than $830,000 of the $2.7 million needed to get the strategy going has now been raised

Demolish it or we will, City of Kelowna staff tell owners of derelict former motel

Former Ponderosa Motel is unsafe and used by squatters, drug users and the homeless says city

VIDEO: Rare close encounter with whale pod spotted off B.C. waters

Pod of southern resident orca whales breach within arms length of whale watchers

Premier John Horgan ponders debate on voting system changes

B.C. Liberal leader Andrew Wilkinson wants one-on-one, no Green

Thieves rip ATM out of Sun Peaks Resort

Kamloops Rural RCMP are investigating after an ATM was stolen from the Day Lodge at Sun Peaks.

Saganash drops F-bomb in Commons over federal approach to Trans Mountain

NDP’s reconciliation critic accused federal government of ‘wilfully’ violating constitutional duties

Okanagan Fall Wine Festival tastier than ever

Festival celebrating 38 years

VIDEO: B.C. dairy farmer says Trump doesn’t understand the industry

‘They need supply management just as bad as we need to keep it’: sixth generation farmer Devan Toop

VIDEO: Death threat, racist comments spewed over empty seat on B.C. bus

Transit Police are investigating the incident, shared online by fellow passengers on Vancouver bus

Sister of plane crash victim that went missing in B.C. starting support network

Tammy Neron wants to help families who are searching for missing people

‘Hello, 911? There’s a horse in my living room’

Sproat Lake firefighters called to ‘rescue’ quarter-horse from Alberni Valley house

Most Read