Canada’s New Mortgage Rules for October 2016

Every once in a while the federal government takes action to either stimulate or suppress Canada’s housing market. In the last few years their only concern has been to the latter.

The Vancouver and Toronto housing markets have been on fire for several years with foreign buyers bidding up prices on houses and condos. Vancouver in particular has seen ridiculous home valuations to the point where an average 3 bedroom bungalow is now worth over 1 million dollars. Wealthy Chinese people have been buying up properties with no regard for price. Some are using money that was made through criminal enterprises as a form of money laundering. The average person cannot even hope to own a home in the greater Vancouver area, because incomes could not possibly keep up with Mortgage moneythe price increases.

Toronto has seen much the same happen, specifically with their condo market. Downtown Toronto is littered with cheaply built shoebox condos that are blocking out the sunlight. There, it is still possible for the average person to buy a home, but they have to settle for much less of a home than they would have just a few years ago.

The rest of the country is not experiencing similar problems, in fact Alberta is experiencing a brutal recession caused by low energy prices, so homes are going down in price if anything. Saskatchewan is doing ok, but they are also being affected by low oil prices. Quebec never really booms or busts, they just stay pretty flat all the time, and the Maritimes suffer from chronically low employment.

Regardless of the fact that most of the country’s real estate market is not overheated and required no action, the government of Canada decided they needed to do something to slow down Vancouver and Toronto. One measure aimed squarely at them is the new rule that requires you to report on your income tax return if you sold a home that you claimed as your principle residence. This will make it harder for foreign buyers to claim they lived in the home when they were actually away for the whole time they owned the property.

The measure that is going to have a large impact on the whole population, especially lower income Canadians is the stress test that will now be applied on everyone that applies for a mortgage that needs to be insured by CMHC or Genworth. This test means that you now must qualify for your mortgage at the posted rate instead of the discounted rate. The banks all post a higher rate than is generally available to most people with good credit. For example, their posted rate for a 5 year fixed rate mortgage might be 4.75%. However, their discounted rate might be 2.5%. Before this change you could qualify for a mortgage at the discounted rate of 2.5%. However, after the change you must qualify at the posted rate of 4.75%.

This means that you can’t qualify for as large of a mortgage as you could before, which means you have to settle for a much cheaper home. For example, before the change you may have qualified for a $400,000 home and after the change you would only qualify for a $325,000 home. That is quite a large difference.

In addition, many mortgage brokers are reporting that even with the change, they are finding it hard to get their people approved.  Talk to mortgage broker to get more details and watch the video below.