Canada’s housing rules change: The Liberal government has announced sweeping changes aimed at ensuring Canadians aren’t taking on bigger mortgages than they can afford.
Expanding a mortgage rate stress test to all insured mortgages.
As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent.
The stress test requires that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.
The government will impose new restrictions, as of Nov. 30, on when it will provide insurance for low-ratio mortgages.
The new rules will restrict insurance for mortgages based on criteria including:
- the amortization period must be 25 years or less,
- the purchase price is less than $1-million,
- the buyer has a credit score of 600
- the property will be owner-occupied.
New reporting rules for the primary residence capital gains exemption.
As of this tax year, the capital gains tax on the sale of a primary residence will continue to be waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.
The government is launching consultations on lender risk sharing.
Currently, the federal government covers the cost of 100 per cent of an insured mortgage in the event of a default. Te government considers this “unique” internationally and it will be releasing a public consultation paper shortly on a proposal to have lenders, such as banks, take on some of that risk.
Not sure if these new rules impact you or you have general mortgage related questions? Contact me and I will connect you with my team of experts.
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