Get Familiar with the New Mortgage Rules
Thursday, October 13th, 2016
Calgary’s real estate market continues steadily along, with home sales jumping more than 2 percent and average prices going up year over year. Despite the economic downturn, we have not seen a dramatic slowdown in most markets where property sales are concerned.
Potentially challenging that stability is a set of new rules around mortgages that the federal government will be phasing in starting October 17. Most noteworthy is a requirement that homeowners seeking an insured mortgage pass a ‘stress test’ to prove they can afford payments even if interest rates climb to the Bank of Canada’s posted rate (which can be nearly double what’s on offer from the banks), and that their carrying costs won’t exceed 39 percent of household income. This applies both to buyers with down payments above and below 20 percent, which is a major change from the status quo.
Other changes include a requirement that revenue coming from home sales be reported to the government at tax time; proceeds from the sale of one’s primary residence will remain tax free, but the feds are attempting to stem foreign buyers using a tax code loophole to claim flipped properties as primary residences to lower their tax bills.
It remains to be seen what the outcome of these changes will be. Some mortgage brokers are predicting that up to a third of first time homebuyers attempting to get into the market may find their pre-approval declined, while supporters see this as a positive way to address Canadians’ rising ratio of debt to income. Home prices in Toronto and Vancouver are rising rapidly, and this move by the government is surely a way to tap the brakes on that growth, but increasing indebtedness in this era of historically low interest rates is also a valid concern.
My advice in light of these rules remains the same as my outlook before they were announced: don’t try to buy more home than you can afford. While you may be pre-approved for a $700,000 mortgage, start your search a fair amount lower than that to see if there’s a property that meets your needs at a more comfortable monthly payment level. You can’t really go wrong with being conservative in this area.
So, when you contact me to line up some showings, give me a range of what you’d like to see below your pre-approval level, and I’ll help find a home that meets the needs of both your lifestyle and your pocketbook. If you aren’t sure what your pre-approval is contact your bank or a mortgage broker, such as Canquest Mortgage, to get started.
