MORTGAGE RULE CHANGES for CANADA

Important mortgage rule changes for Canada took effect on October 17, 2016. These government mandated changes make it harder for buyers who have less than 20% down payment to qualify. Some of the changes include:

• only apply to buyers with less than 20% per cent down
• only applies to purchases (not re-financing)
• must now qualify at the Bank of Canada rate – currently 4.64%, which is significantly higher than the posted, or contract rates
• Canadian government is branding this as a “Mortgage Rate Stress Test”
• existing mortgage commitments are grandfathered into the previous scheme, although closings must take place before March 1, 2017
• applies for all three Canadian mortgage insurers – CMHC, Genworth Financial, Canada Guaranty Mortgage Insurance
• additional changes include certain low ratio mortgages with 20% down payment will still require mortgage insurance, and will now need to qualify at the higher rates
• Canadian citizens will now be required to disclose the sale of their “primary” residence on the income tax forms. Even though now tax may be payable, the sale must still be disclosed
• no changes yet for foreign resident buyers, although there is a distinct possibility that there may be substantial changes here as well

Effect on Real Estate

There has been a lot of discussion on the internet regarding these mortgage rule changes. Here is one video which goes into some detail regarding the October 17 changes:

There is a complete transcript of the video which provides a pretty good summary of the changes.

Slowing Down the Market

So you can see, the Government of Canada is making some radical moves to slow the real estate market in this country. Short of raising interest rates, they are doing everything they can to slow the market, with intent to dampen the price rises in primary cities such as Toronto and Vancouver. It remains to be seen how effective these strategies will be, but we watch them with interest going forward.