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

Long-time Hedley fan weighs in on concert

Davis Wiggs attended Hedley’s final show last night

Kelowna couple hoping for a miracle

Endang Suslash is hoping to stay in Canada so she continue receiving treatment for kidney failure

Highway potholes under ministry jurisdiction

The District of Lake Country doesn’t touch the highway when it comes to filling potholes

Embattled band Hedley plays last show in Kelowna before hiatus

About 3,000 tickets had sold for final performance at Prospera Place

Editorial: Unplug during Earth Hour, or at any time

Earth Hour is today (Saturday, March 24) from 8:30-9:30 p.m.

What’s happening

Find out which events are taking place in the Okanagan and Shuswap this weekend

Canadian cities hold March for our Lives events in wake of Florida shooting

Hundreds of people support the massive March for Our Lives event in Washington, D.C.

Health officials called after acid spill near B.C.-Alberta border leaks into creek

Tanker truck crashed south of Dawson Creek, spilling 17,000 litres of hydrochloric acid

Trudeau to exonerate B.C. First Nations chiefs hanged in 1860s

Prime Minister to absolve Tsilhqot’in chiefs in relation to deaths of 14 construction workers

Snowfall warning for Highway 3

Kelowna - A snowfall warning is in effect from Paulson Summit to Kootenay Pass

Canucks sing the Blues as they fall to St. Louis 4-1

Berglund nets two, including the game-winner, to lift St. Louis over Vancouver

Calving season brings hope for Cariboo ranchers

Still a lot of work ahead to recover from the wildfires

Canada’s Kaetlyn Osmond wins figure skating world title

The 22-year-old fwon the women’s singles crown with her Black Swan routine

How to keep local news visible in your Facebook feed

Facebook has changed the news feed to emphasize personal connections. You might see less news.

Most Read