CHANGE OF SPACE

Dominion Lending Centres breaks down the new changes to the mortgage space, answering your most asked questions – What, Who and Why? – And how WE can help!
To download this information as a PDF, please CLICK HERE. (updated, October 31st)

Why is the Department of Finance implementing these new changes?

These new regulations are aimed at protecting the financial security of Canadians, supporting the long term stability of the housing market in Canada.

Change: MORTGAGE RATE STRESS TEST TO ALL INSURED MORTGAGES

What is it?

Currently insured mortgages with a term of less than 5 years, and/or a variable rate mortgages or had qualifying standards which consisted of using an interest rate which greater of their contract mortgage rate (the rate the Lender was offering) or the Bank Of Canada’s conventional 5 year fixed posted rate.

Under the new Department of Finance regulations, all insured mortgages, regardless of term (fixed or variable) will now have the same qualifying requirements as above.

How does this affect a home buyer with less than 20% down payment?

The biggest affect will be on the amount that the homebuyer will be able to qualify for. Since the qualification rate being used is the Bank Of Canada (BOC) conventional 5 year fixed posted rate, which is roughly 2% greater than current fixed rates, the amount that the home buyer will qualify for will be less.

The minimum down payment, and the contracted interest rate are not affected by these new regulations.

How does this affect a home buyer with more than 20% down payment?

Depending on the Lender used, home buyers with more than 20% down will qualify within the same standards and guidelines of home buyers that have less than 20% down.

Do I still have the option to refinance my home?

Yes, depending on the Lender used, home buyers will still have the ability the refinance up to 80% of the value of their property.

THE PROS ARE THIS:

with lesser demand lends to a lower asking price.

Your challenge through the upcoming months will be to rethink strategy with the home buyers, get them pre-approved again with the stress test factor included. Start the conversation to perhaps either increase down payment or start the process of looking for a new home within their NEW imposed budget.

Change: RESTRICTED INSURANCE FOR LOW-RATIO MORTGAGES

Mortgage loans that Lenders insure using low loan to value ratio mortgage insurance will be required to meet the eligibility criteria that previously only applied to high ratio insured mortgages.

The new criteria for low-ratio mortgages will include the following requirements:

  • Purchases of properties or mortgage renewals
  • A maximum amortization of 25 years
  • A maximum property purchase price below a million dollars
  • Mortgage payments recalculated every 5 years for variable rate mortgages to conform to the original amortization schedule
  • Minimum credit score of 600
  • Maximum gross debt service (GDS) of 39% of home buyers income and a total debt service (TDS) of 44% calculated by using the Bank of Canada conventional 5 – year fixed posted rate.
  • Property must be owner occupied
Change: NEW REPORTING RULES FOR THE PRIMARY RESIDENCE CAPITAL GAINS EXEMPTION

What is it?

Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.

Who does it affect?

Everyone who sells their primary residence will have a new obligation to report the sale to the CRA; however, the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.

Why?

While official say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.

What is an

Insured Mortgage

(High Ratio)

vs.

Non-Insured

Mortgage?

(Conventional/Low Ratio)

An Insured Mortgage is when a home buyer has less than 20% down, the mortgage is insured by either Canada Mortgage and Housing Corporation (CMHC), Genworth, or Canada Guaranty.

This insurance provides security to the Lender in the event of home buyer default.
A Conventional Mortgage is when a home buyer has more than 20% of a down payment and therefore does not require high ratio insurance.

LENDER DISTINCTION

Are all Lenders affected equally by the new regulations?

Some Lenders take out insurance on all of their mortgages regardless if they are high ratio or not. Under the new regulations, brokers may need to work with Lenders that do not insure all of their mortgages in order to help home buyers qualify.

QUALIFYING RATE is the BOC Conventional 5 year fixed posted rate.

CONTRACT RATE is the rate offered by the Lender in which home buyer’s actual mortgage payments are based upon.

To place this into perspective,  in 2008, fixed rates were 5.99%. This is still much higher than the current qualifying rate of 4.64%. Interest rates that borrowers will actually get are still expected to remain near record lows.

HOW CAN DOMINION LENDING CENTRES HELP?

Now more than ever home buyers are going to rely on mortgage brokers for their guidance and expertise in navigating through these regulatory changes.

There are differences amongst the many Lenders that we have access to and the greatest value a broker can provide is the knowledge of the lending environment and in choosing which Lender is best suited for their home buyers needs.

These new rules and regulations implemented by the Ministry of Finance were abrupt and without consultation. Dominion Lending Centres will continue to report and educate our mortgage brokers and our home buyers as new data arises.

Together we will adapt, strategize, and remain CANADA’S #1 MORTGAGE COMPANY.