In this article I’m going to talk to you about the new mortgage rules that the federal Government of Canada has just imposed upon us that are going to take place effective October 17, 2016. If you have an existing mortgage this is not going to affect you at all. However, if you’re selling your home, buying a new home and applying for a new mortgage this is definitely going to affect you. So what the federal government has done is a couple of things really.
Foreign Investment in Canada
First of all they are taking steps in an attempt to cool a HOT real estate market. I have to tell you the truth; this is the hottest market for home sellers I’ve seen in my 21 years in real estate in Kitchener-Waterloo. Period! How the government plans to cool the market is by imposing a tax on foreign buyers. Up until now, foreign investors could come to Canada and a buy house as long as they lived in it for a year. Then it was considered their principal residence so if they sold it there was no capital gains tax on it. The government has now wiped that out so if you’re a foreign investor buying in Canada, whenever you sell that house and make a profit, you have to pay capital gains tax. The reason why the government wants to dissuade foreign investors from buying houses is to prevent so much quick flipping of these homes.
Mortgage Qualification Rules
The second thing the federal government has done is they’ve changed the mortgage qualification rules. Although you or someone you know may qualify for a low mortgage rate of 2.0% or 2.1%, the Government of Canada now says that nevertheless, you have to qualify for that same mortgage at the current five-year Bank of Canada rate which today is 4.64%. So for instance if you are buying a new home and you’re putting 10% down, where you would have qualified for a new mortgage of say 605,000… with the new rules you would only qualify for a mortgage of $510,000. The hope is that this will mean Canadian home owners won’t stretch themselves so far credit-wise. In actuality, this is a valid concern that trip mortgage rates take a jump of one or two or even three percent that would throw a lot of people out of their homes and we would have a terrible situation. We would have a lot of foreclosures, powers of sale – so I understand what the government is doing. It’s a little bit of what I call “social engineering” trying to tax our behaviour and make our behaviour such away by tags but it’s not totally free enterprise but it’s being done anyway so we have to live with it anyway.
To get my full response on the new mortgage rules in Canada, watch my video below:
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