New Federal Mortgage Rules Came into Effect Yesterday, Oct 17, 2016
In an effort to slow down Canada’s ultra-hot housing market, the federal government has put into effect new mortgage rules. What do these new rules really mean for those looking to buy or sell real estate? Let’s have a look.
The first change affects foreign home buyers. Foreign buyers who purchase Canadian property, but are not residents of Canada at the time of the purchase, will no longer be able to claim a “principal residence exemption” as a tax loophole to avoid paying capital gains once their home increases in value and is eventually sold.
The second change involves a mortgage repayment stress test at Bank of Canada’s posted rate of 4.64% for all insured mortgage applications. The banks will assess whether the borrower will be capable of repaying their loan should interest rates increase or the borrower’s financial situation changes. In other words, if a purchaser does not have a 20% down-payment for their home, that homebuyer will have to prove that they can continue to make their mortgage payments at a higher interest rate.
These changes will inevitably cut into the purchasing power of some buyers – particularly first-time homebuyers. However, according to Canada’s Finance Minister, Bill Morneau, these new rules will “not affect Canadians with existing mortgages“.