Key dates for 2016 mortgage rules, changes and impacts

By Alisa Aragon
December 09, 2016

This past year, homeowners and purchasers witnessed significant changes in mortgage rules impacting the housing market. In case you missed them, here are some key dates:

February 15, 2016: Increase in down payment

The minimum down payment for new insured mortgages increased from five to 10 per cent for the portion of the house prices above $500,000 up to $999,999. The five-per-cent minimum down payment for properties up to $500,000 remained unchanged.

Also, the changes allowed for the use of 100 per cent offset should the home have a legal suite. This was great news for Vancouver and Toronto, where housing costs surpassed $1 million.

While the down payment requirements changed, homebuyers purchasing a newly built home were exempted from paying the BC Property Transfer tax, regardless if they were first-time homebuyers with a purchase price of $750,000 or less.

August 2, 2016: New foreign buyers' tax

The BC government introduced an additional 15-per-cent tax on residential property transfers to non-residents or foreign corporations for properties in the Greater Vancouver Regional District. The additional tax applied to all applicable transfers registered with the Land Title Office on or after Aug. 2, 2016, regardless when the contract of purchase and sale was entered. This has been a huge challenge for foreigners who purchased pre-sale properties.

October 17, 2016: Mortgage “stress test”

The mortgage qualification for insured mortgages with variable or fixed interest rates, regardless of the term, must now qualify at the Bank of Canada's posted rate, which currently sits at 4.64 per cent. However, the borrower’s actual mortgage payments are still based on the contract rate offered by the lender.

This change meant homebuyers qualify for a property of approximately 20 per cent reduction in value. In simple terms, a buyer who qualified to purchase a $650,000 property would now, under the new mortgage rules, only qualify for a property priced at $504,000.

The new mortgage stress test doesn’t apply to:

  • mortgage loan insurance applications received before Oct. 17, 2016
  • if the lender made a legally binding commitment to make the loan before Oct. 17, 2016; or
  • the borrower entered a legally binding agreement of purchase and sale for the property, against which the loan is secured before Oct. 17, 2016.

Another change that took effect involves reporting which property is the principal residence to be exempted from paying capital gains. Starting in 2016, there is a form in the personal income tax return to fill out. This has been done so house flippers pay their share of income tax on monies earned by buying and selling homes. This also applies to foreign residents, when they sell property in Canada – even when a family member may have lived in it. They are now required to pay capital gains.

November 30, 2016 – Tighter mortgage insurance rules

Mortgages that lenders insure for conventional mortgages are now required to meet the same qualifying criteria that previously only applied to high-ratio insured mortgages. Are are the requirements:

  • properties must be owner-occupied, while rental properties are not excluded
  • the maximum amortization period is 25 years
  • the maximum property purchase price is $999,999 or less
  • a minimum credit score of 600
  • maximum gross debt service of 39 per cent of homebuyer income and a total debt service of 44 per cent, calculated by using the Bank of Canada's conventional five-year fixed posted rate.

Considering all the changes that have occurred, and that interest rates have gone up, borrowers can still get near record-low interest rates. To put it in perspective, in 2008, fixed rates were 5.99 per cent. This is still much higher than the current qualifying rate of 4.64 per cent.

The new mortgage rules have created a lot of confusion for both the industry and homebuyers. In light of these changes, it is now even more important to consult a mortgage expert, who can provide you with the latest information, and ensure you get the best lender and rate based on your individual needs.

About Alisa Aragon

Alisa Aragon is a mortgage expert who develops short- and long-term strategies that are customized for each client. Her strategies include the best mortgage with the most favourable terms and rates to suit your needs. Email her at aaragon@dominionlending.ca

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