You May Not be Able to Afford a Mortgage after the 17th

[MortgageQueen]

I don't visit SC much more, but I noticed no one had posted the HUGE news that government just announced

In effect as of October 17th, 2016 (but really the 14th or sooner)

Buyers will have to "QUALIFY" at a mortgage rate almost twice what it is now. This may eliminate the possibility of some to even buy a house at all.

So although you will actually still be paying around the 2.5% range on a 5 year mortgage, you will not get that mortgage unless you QUALIFY under 4.64%. This will not only affect getting an approval but also will considerably decrease the "Amount" of a mortgage one can get.

I have paste and copied an article explaining it below. But because I don't visit here often, you would have to email me with any questions. Sorry. MQ
[email protected]


Are you a first-time home buyer concerned about the housing rule changes? Email [email protected] and you could be featured in a story.

The Liberal government has announced sweeping changes aimed at ensuring Canadians aren’t taking on bigger mortgages than they can afford in an era of historically low interest rates.

The changes are also meant to address concerns related to foreign buyers who buy and flip Canadian homes.
Below is a breakdown of the four major changes Finance Minister Bill Morneau announced Monday.

The current rules
Buyers with a down payment of at least 5 per cent of the purchase price but less than 20 per cent must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages.

In situations in which the buyer has 20 per cent or more for a down payment, the lender or borrower could obtain “low-ratio” insurance that covers 100 per cent of the loan in the event of a default.

Mortgage insurance in Canada is backed by the federal government through the Canada Mortgage and Housing Corp. Insurance is sold by the CMHC and two private insurers, Genworth Financial Mortgage Insurance Company Canada and Canada Guaranty Mortgage Insurance Company. The federal government backs the insurance offered by the two private-sector firms, subject to a 10-per-cent deductible.

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The change

Expanding a mortgage rate stress test to all insured mortgages.

What it is
As of Oct. 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages – including those where the buyer has more than 20 per cent for a down payment. The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada. This rate is usually higher than what buyers can negotiate. As of Sept. 28, the posted rate was 4.64 per cent.

Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.

Who it affects
This measure affects home buyers who have at least 20 per cent for a down payment but are seeking a mortgage that may stretch them too thin if interest rates were to rise. It also affects lenders seeking to buy government-backed insurance for low-ratio mortgages.

Why
The government is responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise.

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The change
As of Nov. 30, the government will impose new restrictions on when it will provide insurance for low-ratio mortgages.

What it is
The new rules restrict insurance for these types of mortgages based on new criteria, including that the amortization period must be 25 years or less, the purchase price is less than $1-million, the buyer has a credit score of 600 and the property will be owner-occupied.

Who it affects
This measure appears to be aimed at lowering the government’s exposure to residential mortgages for properties worth $1-million or more, a category of the market that has increased sharply in recent years in Vancouver and Toronto.

Why
Vancouver and Toronto are the two real estate markets that are of most concern for policy makers at all levels of government. These measures appear to be targeted at those markets.
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The change
New reporting rules for the primary residence capital gains exemption.

What it is
Currently, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, but the sale of the primary residence must be reported at tax time to the Canada Revenue Agency.

Who it affects
Everyone who sells their primary residence will have a new obligation to report the sale to the CRA, however the change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled.

Why
While officials say more data are needed, Ottawa is responding to extensive anecdotal evidence and media reports showing foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption.

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The change
The government is launching consultations on lender risk sharing.

What it is
Currently, the federal government is on the hook to cover the cost of 100 per cent of an insured mortgage in the event of a default. The federal government says this is “unique” internationally and that it will be releasing a public consultation paper shortly on a proposal to have lenders, such as banks, take on some of that risk. The Department of Finance Canada acknowledges this would be “a significant structural change to Canada’s housing finance system.”

Who it affects
Mortgage lenders, such as banks, would have to take on added risk. This could potentially lead to higher mortgage rates for home buyers.

Why
The federal government wants to limit its financial obligations in the event of widespread mortgage defaults. It also wants to encourage prudent lending practices.

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Five previous federal housing moves since 2008
Monday’s package of announcements is the sixth time since the onset of the 2008 financial crisis that Ottawa has taken policy action in response to concerns about Canada’s housing market.

July, 2008: After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.

February, 2010: Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90 per cent of a home’s value, down from 95 per cent. The move also set a new 20-per-cent down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.

January, 2011: The Conservative government under Stephen Harper tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage to 30 years. The maximum amount Canadians could borrow via refinancing was further lowered to 85 per cent.

June, 2012: A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages. A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage. Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value. Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.

December, 2015: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.
The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10 per cent from 5 per cent for the portion of a home’s value from $500,000 to $1-million.
http://www.theglobeandmail.com/real-...click=sf_globe

[Davetherave]

Just going to say it is about time the feds did this, with the way it is going a major back turn would see a lot of people lose their home at least now newer ones will have a better chance of saving them selves that loss. With this market a downturn is inevitable.

[Addictedtodeals]

I agree @Davetherave . Even as a person just finishing university and yet to buy a house, I think it is a great idea to make it harder to qualify, thus further trying to ensure people are capable to pay their mortgages and get into home ownership before they are fully ready.

[Shwa Girl]

Just going to say it is about time the feds did this, with the way it is going a major back turn would see a lot of people lose their home at least now newer ones will have a better chance of saving them selves that loss. With this market a downturn is inevitable.

[Zonny]

When we were buying our first home 13 years ago, our bank approved us for a MUCH bigger mortgage than what we could have reasonably afforded. I can see how tempting it would be to spend all you were offered. But if we had, we wouldn't have money for much of anything else now. So I don't think this is really a bad thing for a lot of people.

[GatineauGirl]

When we were buying our first home 13 years ago, our bank approved us for a MUCH bigger mortgage than what we could have reasonably afforded. I can see how tempting it would be to spend all you were offered. But if we had, we wouldn't have money for much of anything else now. So I don't think this is really a bad thing for a lot of people.

I know what you mean....we were also told that we could go for a much bigger mortgage. I found this crazy, because the real estate agents were pushing us to go for houses that would have taken ALL our income. They had no consideration for the financial requirements of everyday life....you know....the luxuries of living, like heat & hydro & gas & food... I am so glad we listened to me, LOL, and went for a smaller home. Now at least we have the money for a (very brief) rainy day.

[sweet sparrow]

When we purchased our first home, I remember our mortgage broker wouldn't even tell us what we were approved for. He said that number was a fictitious number that didn't matter. As long as we bought a reasonably priced house that fit our needs (including any future plans for children), and nothing more, it's best not to be caught up in a number that we'd be a slave to paying back until retirement.

It was funny that he said that because we were sitting in his posh home office in the most expensive part of the GTA (our real estate agent called it "the jewel of the GTA"), with a monogrammed marble stone with his initial in his driveway. He had a huge motorhome parked out front with all the kids bikes and toys set out to be packed as he was leaving for vacation that afternoon.

[MortgageQueen]

When we purchased our first home, I remember our mortgage broker wouldn't even tell us what we were approved for. He said that number was a fictitious number that didn't matter. As long as we bought a reasonably priced house that fit our needs (including any future plans for children), and nothing more, it's best not to be caught up in a number that we'd be a slave to paying back until retirement.

It was funny that he said that because we were sitting in his posh home office in the most expensive part of the GTA (our real estate agent called it "the jewel of the GTA"), with a monogrammed marble stone with his initial in his driveway. He had a huge motorhome parked out front with all the kids bikes and toys set out to be packed as he was leaving for vacation that afternoon.

I imagine that mortgage broker got rich because he gave such good advice that did not involve greed, but he obviously cared more for his clients welfare. . .. hence many referrals from grateful clients.

That's what a good mortgage broker does. Although we don't all get rich!

[Giseledta]

Thank you so very, very much for your help!!!!!!!!

[SassyAshley]

When we purchased our house it was funny our broker told us you will probably get approved for X and broke down what our payments would be and although this number was lower then we expected we rolled with it and that is what we ended up with as Mortgage on our house.

When all was said and done we were actually approved for a much higher number which we toyed with looking for other options but the reality was the payments would not be realistic, one sick day and we might come up short on our bills.

Needless to say we are happy going with the lower number although the house is not perfect it gave us what we needed and we are now house poor.

[Redneck Charger]

I'm very happy the government has finally stepped in and did something, it may stop the Joes from buying a big home that he doesn't need. I know people who have to work now two or three jobs to pay for the big house, the fancy cars, the furniture to fit the fancy home, and don't have time for their kids, cuz they had to have all the best.... Buy within your comfort.. and buy on one of your salaries only, cuz then you will have money in the background in case you need it.

[anisa]

The real life freedom you get from living WITHIN your means is unmatchable.

screw all the 'stuff' ... I want peace of mind, time with my kids and happiness in my home.

[anisa]

I love the news stories that show a professional couple, working 2 decent jobs who just cannot afford to buy a home. no home at all. nothing. nada.

So sad, they have such sad looks on their faces.

Yes they can buy a lovely home I am sure, they just want to land an uber expensive dream home in their first shot.

[SassyAshley]

My 3 siblings still live with my Dad as housing prices are so high in our area there are no starter homes. One bro just bought a Condo but it won't be built until September 2017, other bro and gf want a started home but even townhouses are going for $300,000 and up. They ideally are looking for around $200,000 and there are no houses for that price right now.

I love the news stories that show a professional couple, working 2 decent jobs who just cannot afford to buy a home. no home at all. nothing. nada.

So sad, they have such sad looks on their faces.

Yes they can buy a lovely home I am sure, they just want to land an uber expensive dream home in their first shot.

[anisa]

I am talking about the ones who want to get the 800,000 'starter' homes.



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