Mortgage Information

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October 2017

Several changes to lending requirements and rules this past year have made the Home Buying process a little more difficult to manage. The amount of money individuals qualify to borrow has dropped significantly with these new regulations. Here's some info on Conventional Loan Home Buying.

October 2016

Today, the Government announced a change to the eligibility rules for new government-backed insured mortgages. Effective October 17, 2016, all high-ratio insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada's conventional five-year fixed posted rate. This requirement will also be extended to low-ratio insured mortgages effective November 30, 2016 (see below). This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years.

The Bank of Canada’s conventional five-year fixed posted mortgage rate is the mode (i.e., the most common occurring number) of the conventional five-year fixed mortgage rates advertised by Canada’s six largest banks. The rate is updated weekly and is available on the Bank of Canada’s website (CANSIM table 176-0043). The Bank of Canada’s posted rate is typically higher than the contract mortgage rate most buyers actually pay. As of September 28, 2016, the Bank of Canada posted rate was 4.64 per cent.

For borrowers to qualify for mortgage insurance, their debt-servicing ratios must be no higher than the maximum allowable levels when calculated using the greater of the contract rate and the Bank of Canada posted rate. Lenders and mortgage insurers assess two key debt-servicing ratios to determine if a homebuyer qualifies for an insured mortgage:

  • Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
  • Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.

To qualify for mortgage insurance, a homebuyer must have a GDS ratio no greater than 39 per cent and a TDS ratio no greater than 44 per cent. Qualifying for a mortgage by applying the typically higher Bank of Canada posted rate when calculating a borrower’s GDS and TDS ratios serves as a “stress test” for homebuyers, providing new homebuyers a buffer to be able to continue servicing their debts even in a higher interest rate environment, or if faced with a reduction in household income. 

The announced measure will apply to new high-ratio mortgage insurance applications received on October 17, 2016 or later. This measure will not apply to high-ratio mortgage loans where, before October 17, 2016: a mortgage insurance application was received; or, the lender made a legally binding commitment to make the loan; or, the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured.

Homeowners with an existing high-ratio insured mortgage, including those renewing or transferring an existing high-ratio insured mortgage to another lender, are not affected by this change as high-ratio mortgage insurance spans the life of the mortgage.

Changes to Low-Ratio Mortgage Insurance Eligibility Requirements*

*Revised October 14, 2016

The Government also announced today changes to the eligibility rules for newly insured low-ratio government-backed insured mortgages. These new eligibility criteria will help target the funding support provided by government-backed low-ratio mortgage insurance towards safer forms of lending.

Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:

  1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
  2. A maximum amortization length of 25 years;
  3. A property value below $1,000,000;
  4. 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 established amortization schedule;
  5. A minimum credit score of 600;
  6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
  7. If the property is a single unit, it will be owner-occupied.

These changes will not apply to low-ratio mortgage loans where, before October 17, 2016: a mortgage insurance application was received; or, the lender made the loan or made a legally binding commitment to make the loan; or, the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured. The new low-ratio mortgage insurance eligibility requirements also do not apply if, during the period beginning on October 17, 2016 and ending on November 29, 2016, at least one of these three criteria is met and the loan is funded before May 1, 2017.

Forthcoming Consultation on Lender Risk Sharing

Today, the Government announced that it would launch a public consultation process this fall to seek information and feedback on how modifying the distribution of risk in the housing finance framework by introducing a modest level of lender risk sharing for government-backed insured mortgages could enhance the current system.

Canada’s system of 100 per cent government-backed mortgage default insurance is unique compared to approaches in other countries. A lender risk sharing policy would aim to rebalance risk in the housing finance system so that lenders retain a meaningful, but manageable, level of exposure to mortgage default risk.

Implementing a lender risk sharing policy would be a significant structural change to Canada’s housing finance system. Today’s announcement will be followed in the coming weeks by a public consultation paper, which will begin a consultation process with stakeholders to determine the suitability and potential design of a lender risk sharing program for Canada’s housing finance system.

Proposed Income Tax Measures

The income tax system provides a significant income tax benefit to homeowners disposing of their principal residence, in the form of an exemption from capital gains taxation (“the principal residence exemption”). However, there are limits to the exemption. The exemption is intended to be available only to Canadian resident individuals and trusts. Also, families are able to designate only one property as the family’s principal residence for any given year. 

The proposed tax measures announced today would improve tax fairness and the integrity of the tax system. The first two measures would better ensure that the principal residence exemption is available only in appropriate cases, and in a manner consistent with the Canadian resident and one-property-per-family limits. Specifically, under these measures:

  1. An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after October 2, 2016—be able to claim the exemption for that year. This measure ensures that permanent non-residents are not eligible for the exemption on any part of a gain from the disposition of a residence.
  2. Trusts will be eligible to designate a property as a principal residence for a tax year that begins after 2016 only if additional eligibility criteria are met. These criteria will improve fairness and integrity by better aligning trust eligibility for the principal residence exemption with situations where the property is held directly by an individual. A trust will be required to be—in each year that begins after 2016 for which the designation applies—a spousal or common-law partner trust, an alter ego trust (or a similar trust for the exclusive benefit of the settlor during the settlor’s lifetime), a qualifying disability trust, or a trust for the benefit of a minor child of deceased parents. In addition, the trust’s beneficiary who, or whose family member, occupies the residence for the year will be required to be resident in Canada in the year, and will be required to be a family member of the individual who creates the trust. Transitional relief is provided for affected trusts for property owned at the end of 2016 and disposed of after 2016.

Today’s announcement also includes changes to improve compliance and administration of the tax system with respect to dispositions of real estate. In this respect, the following additional changes are announced for tax years that end after October 2, 2016:

  1. The Canada Revenue Agency (CRA) will require a taxpayer to report the disposition of a property for which the principal residence exemption is claimed. The CRA currently does not require this reporting where a property is eligible for the full principal residence exemption. The change means that, when a taxpayer disposes of a principal residence, the taxpayer will be required to provide basic information in the taxpayer’s income tax return for that year in order to claim the exemption.  In addition, the CRA will be explicitly authorized to accept late-filed principal residence designations. More details are available on the CRA’s website.
  2. A proposed measure would provide the CRA with authority to assess taxpayers, beyond the normal assessment limitation period for a tax year, in respect of a disposition of real estate by the taxpayer (or a partnership of which the taxpayer is a member), in cases where the disposition is not reported in the taxpayer’s tax return (or in the case of a partnership, the partnership return) for the year in which the disposition occurs. In the case of property disposed of by a corporation or partnership, the measure would apply only to property that is capital property.

The CRA will continue to work with provincial partners to seek ways to further improve information collected on real estate transactions, and to ensure the effective sharing of this information with tax authorities.

A Notice of Ways and Means Motion with respect to the proposed income tax measures, together with related explanatory notes, are included in today’s release. References in the Notice of Ways and Means Motion and explanatory notes to Announcement Date refer to October 3, 2016.



June 21, 2012

Federal Government Changes to Mortgage Lending

For the fourth time in as many years, the Federal Government has announced action to restrict mortgage credit. The new measures include:

  • The maximum amortization on a prime mortgage will be reduced from 30 to 25 years.

  • Mortgage insurance will not be provided for properties valued over $1 million.

  • Refinancing has been lowered from a maximum of 85% loan-to-value to a maximum of 80% loan-to-value.

  • The maximum gross debt service (GDS) and total debt service (TDS) will be limited to a maximum of 39% and 44% respectively. Currently, GDS does not apply to qualified borrowers with credit scores over 680.

These measures will take effect July 9, 2012.

Here’s a key question members are already asking today:

Q. I have a written mortgage pre-approval from a lender, dated before July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year amortization if I don’t sign an agreement of purchase and sale until July 9, 2012 or later?

A. No, a mortgage pre-approval without an agreement of purchase and sale is not sufficient to qualify for a 30-year amortization. You may have a 30-year amortization only if your agreement of purchase and sale is dated before July 9, 2012 and you have made a mortgage insurance application before July 9, 2012. You may wish to discuss with your lender to revise your mortgage pre-approval using the new parameters announced today.


January 28, 2011

Federal government announces changes to mortgage financing requirements

The federal government recently announced three changes to the rules for government-backed insured mortgages.

First, the government will reduce the maximum mortgage amortization period from 35 to 30 years. Second, the maximum amount of the value of a home that can be re-financed will drop from 90 per cent to 85 per cent. And finally, government insurance will no longer be available to financial institutions wishing to insure home equity lines of credit.

“These are prudent measures that promote responsible lending practices and further strengthen our internationally recognized mortgage finance system,” Jake Moldowan, Board president said.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.


May 1, 2010

New mortgage rules take effect

New mortgage rules take effect

Federal mortgage rules implemented two months ago aimed at turning down the heat on Canada's red-hot real estate market took effect on Monday.
In February, Finance Minister Jim Flaherty outlined a slate of new regulations that borrowers and lenders must adhere to qualify for a mortgage in Canada. The rules became law on April 19, 2010.
Among the rules:
- All borrowers must meet the standards for a five-year, fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term.
- The maximum Canadians can withdraw when refinancing their mortgages drops to 90 per cent of the value of their home, from 95 per cent.
- Buyers must make now a minimum 20 per cent down payment — up from five per cent — to qualify for Canada Mortgage and Housing Corp. insurance for non-owner-occupied properties purchased as an investment.
"There is no evidence of a housing bubble, but we're taking prudent steps today to prevent one," Flaherty said at the time.
The five-year rate requirement is likely to have the greatest impact, as borrowers must now meet more stringent standards and provide more documentation for their income.
Investment property
However, the 20-per-cent minimum down payment rule is less likely to make a significant dent in real estate activity as there are no rules as to where those funds can come from. There is nothing in the rules that would prevent homeowners from withdrawing equity from their primary residences to meet the 20 per cent threshold on a second investment property, for example.
"Creative financing will become increasingly popular," London-area real estate agent Marcus Caporicci said of the new rules.
Ultimately, home buyers will continue to tap their personal credit lines and family connections to get the money they need to enter the housing market, he said — even if a few are jumping in early to avoid tougher lending rules or rising rates.
"What the government wants to do is ensure that people aren't taking on too much debt that they run into problems when rates rise," TD Bank deputy chief economist Craig Alexander said.
"If you're going to invest in real estate, you'll have to put down a minimum of 20 per cent," he said. "That should cool speculation and that's a positive thing."
Torrid pace
Real estate in Canada has been on a torrid pace since late 2009, as would-be buyers rush to take advantage of record low rates amid an improving economy. The average national price last month was $340,920, the Canadian Real Estate Association said last week.
But that pace has slowed of late, Alexander said — sales have been down in four of the last five months as the number of new listings has increased.
"Year-over-year price changes are still up by about 17 per cent, but you're comparing it to recession lows," Alexander said of the most recent sales data. "By the time we get to May and June of this year the year-over-year comparisons are going to look remarkably different."
"The increase in supply is acting to cool the market and that's healthy economics," Alexander said. He expects sales to be roughly 10 per cent lower by the end of 2010, with price gains in the range of one to three per cent.









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