The New Mortgage Rules and How They Affect You!

Over the past few years, the price of real estate in Canada—especially in Vancouver and Toronto—has risen rapidly. One of the potential causes of these rising prices is foreign investment, especially in those two cities. As a result, many Canadians have been forced to take out much larger mortgages with smaller down payments. This leaves them with monthly payments so high, their financial security would be at risk if interest rates were to rise.

On October 17th, the federal government introduced new mortgage rules to address these concerns. All insured mortgages (where the buyer has a down payment of less than 20% of the home price) are now “stress tested” at a higher interest rate to ensure that the buyer will be able to continue making payments if rates climb. This means buyers will have to qualify for financing at the Bank of Canada’s posted 5-year fixed rate (currently well over 4%) instead of the rate most buyers will actually pay (closer to 2%). According to insurer Genworth Canada, about one third of insured mortgages won’t qualify under this new requirement!

In addition, the government also closed a tax loophole. Now, only Canadian residents can use the principal residence tax exemption which lets them avoid capital gains tax when they sell the home they’re living in. This is intended to reduce some of the foreign investment that’s helping to drive up Canadian real estate prices.

While the new mortgage rules will prevent some Canadian homebuyers from getting in over their head, they also make it much more difficult for people to enter the real estate market. First-time buyers will now have to save larger down payments, wait until their income is higher, or settle for smaller homes.

If these new rules have affected you, please contact us today. We can work with you to develop innovative mortgage strategies that can help keep your dream of home ownership alive!

Kupina MortgageTeam  905.730.4782 – mark@kmortgage.ca