The Canadian Government announced new mortgage lending requirements that will affect a number of families. The measures announced by Finance Minister Morneau are more far reaching than anything considered to date and could well have quite a significant impact.
Measures Affecting All Homebuyers
Effective October 17, 2016
Broadened Mortgage Rate Stress Test
If you are looking to purchase a property with less than 20% down payment, you will now need to qualify at the Canadian Benchmark rate which is currently 4.64%. This was previously reserved for those wanting a variable rate or a term of less than 5 years.
This change will mean on a purchase price of $500,000 your income will now have to be approximately 20% greater or an annual income of $106,700 vs. $88,700 before this change!*
Effective November 30, 2016
Tighter Mortgage Insurance Rules
If you would like to obtain a mortgage (Purchase or Refinance) with a Canadian lender that currently back insures their mortgages (called portfolio insurance) you will be required to qualify under the same rules as a HIGH RATIO mortgage:
- A maximum amortization length of 25 years
- A maximum property purchase price below $1,000,000
- For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule
- A minimum credit score of 600
Measures Aimed At Foreign Homebuyers
Effective October 2, 2016
- An individual who was not resident in Canada in the year the individual acquired a residence will not be able to claim the exemption for that year.
- The Canada Revenue Agency (CRA) will, for the first time, require all taxpayers to report the sale of a property for which the principal residence exemption is claimed.
If you plan on purchasing a new home, refinancing or renewing your mortgage in the immediate future, please pay attention to these new rules revealed by the government today. There is no better time than to get in touch with a mortgage professional who can guide you through these changes.
* The information provided is for illustrative purposes only and accuracy is not guaranteed. The default figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult a financial professional prior to relying on the numbers.