The New Canadian Mortgage Rules
Source Mortgage Centre – Mortgage Broker Sylvan Lake
Canada is yet again operating under new mortgage rules. This is something you probably remember reading in the fall of 2016. If you’re looking for a mortgage you may be wondering how the new rules will affect you. We always recommend you speak with a licensed Mortgage Broker in Sylvan Lake. A qualified mortgage broker can assess your situation with no fee or obligation.
Whenever you are purchasing a home in Canada with less then 20% down payment, mortgage default insurance is required. This is a requirement by all lenders and is actually regulated federally. This insurance policy is paid for by the borrower but is for the benefit of the lender. In the event you default on your mortgage loan, this insurance policy pays the lender back for the loan that was lent to you. This reduces the risk to the lender allowing them to lend up to 95% of the purchase price on your home. Thus, making home ownership much more attainable for Canadians.
With these new rule changes, mortgages which requires this mortgage default insurance (less then 20% down payment) must undergo a stress test. Whereby they determine if you can still afford your house if rates were to rise. The stress test means you have to qualify at the bank of Canada’s benchmark rate of 4.64% instead of the banks contract rate (actual rate) of around 2.79%.
Many mortgage lenders with borrowers putting 20% or more for a down payment still choose to add a mortgage default insurance policy. This is to reduce their lending risk. However with 20% or more down payment these lenders typically pay the premium fees. This is how many monoline (mortgage only) lenders are able to provide lower rates to consumers then their bank counterparts. As their mortgages are “back end” insured with a lower risk to the investors.
However further changes were announced as of Nov 30th 2016. New criteria for low-ratio or “back end” mortgage insurance took effect. These mortgages that are insured even with 20% down require the stress test. For many Canadians in this group, the changes will have little to no impact. They will still be able to enjoy low mortgage rates. For others it may reduce their options when it comes to mortgage refinances, renewals or purchases to stick with a bank lender not using mortgage insurance so the qualifying on the file still occurs at the contract rate. A mortgage broker has access to both bank and monoline lenders even more reason to contact for a review of your situation and any impact it may have.
Beginning this tax year, these changes will also have significant tax implications. All home sales must be reported to the Canada Revenue Agency. Capital gains from sales of primary residences will remain tax-free. Although, the government is aiming to block foreign buyers from purchasing and selling homes, falsely claimed as primary residences to avoid capital gains tax.
If you’re looking for a mortgage in Sylvan Lake, our mortgage brokers have helped many people with their mortgage needs. Whether you’re looking for a new mortgage or you have refinancing needs contact us today!
