1. The Mortgage Rate "Stress Test" Effective October 17th, you're going to need to pass a tougher stress test when qualifying for any insured mortgage. This applies even if your down payment is more than 20% but your lender requires mortgage insurance. You can still avail of today's low interest rates. The government is saying you should qualify based on a higher rate. That rate would be the Bank of Canada's five-year fixed posted mortgage rate. As of September 28th, that rate is 4.64%. What does this mean exactly? *Any home buyer
that has less than 20% down payment will now have to qualify using the Bank of Canada's 5-yer posted rate regardless of what the product or term is chosen. So for instance, if you are getting 5-year fixed term today at 2.34% today, you will still have to qualify at 4.64% which is nearly double than your actual interest rate. This will significantly cut the mortgage amount you could borrow. * Any home buyer or existing homeowner looking to purchase or refinance will be subject to the same qualifications above if their lender requires mortgage default insurance even with more 20% down payment or equity.
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2. New restrictions for low-ratio mortgages Beginning November 30th, there are specific criteria for any home buyer applying for a low ratio mortgage The amortization (period of the loan) must be 25 years or less The purchase price is less than $1 Million Your credit score has to be 600 or greater The property has to be owner occupied
3. Capital gains exemptions for primary residences Selling your primary residence is tax-free. You don't have to report it as income tax on your tax returns. When these changes come into effect, selling your primary residence remains tax free. But now it has to be reported to the Canada Revenue Agency. This change is primary targeting foreign buyers who have been evading Canadian tax laws. They buy a home (as an investment), flip it, and sell it at profit without paying taxes. They do this buy saying it's their primary residence, even though they may not have lived there.
4. Lenders and the risks they take The government is telling the banks and lenders to take some of the risk. This mortgage rule change could to higher mortgage rates. Lenders can no longer rely on the government to cover mortgage defaults. They would take on some of the responsibility. This would encourage more prudent and careful mortgage practices. Ultimately it could lead to higher mortgage rates so that lenders can afford to cover themselves for defaults.