Vancouver Island Real Estate- New Mortgage Rules Changes

Oct 16, 2016

On October 3, 2016, the Federal Government tightened mortgage rules and closed a popular tax evasion loophole.

Harder to qualify for a mortgage

Starting October 17th, 2016, purchasers with less than 20% down payment will need to qualify at the Canadian Benchmark rate of 4.64%. Previously, a variable rate or a term of less than 5 years required this benchmark rate, but now all rates (including 5-year fixed rates) require it.
Example: Prior to Oct 17, 2016, a $60,000 salary would allow for a purchase price of $400,000 with 10% down payment. The mortgage here would be $368,640 (inclusive of $8,640 CMHC fees).
After Oct 17, 2016, the same $60,000 salary would allow for a purchase price of $325,000 and a CMHC mortgage of around $291,840. This shows about a 20% decrease in affordability.
The ability for people who have less than 20% down (first time home buyers included) will be mostly affected. Due to this new regulation, those affected qualify for purchases of approximately 20% less. These new tighter rules affect new mortgage insurance applications received on October 17 or later and do not affect prior committed mortgages. Homeowners with existing insured mortgages, or those renewing existing insured mortgages are also not affected.

Capital Gains Exemption Loophole Closed
The government requires property purchasers to be residents in Canada during the time of a purchase in order be exempt from capital gains taxes. Furthermore, families will only be able to designate one property as the family’s principal residence for any given year. Sales of principal residences will now be reported on income tax returns.