Finance minister Bill Morneau announced changes to the rules governing mortgages. Effective October 17th, all insured mortgages will have to qualify against the Bank of Canada rate which is currently at 4.64%. These changes will affect both high ratio and conventional mortgages.

There is a new restriction placed on conventional insured mortgages. It is no longer possible to extend the amortization on an insured conventional mortgage beyond 25 years. (Conventional mortgages are also usually insured by CMHC or Genworth, usually the lender doesn’t charge the borrower any premiums. The exception is for loans from alternate lenders which will usually have an interest rate around 4% or more)

Ottawa has also tightened the tax rules for foreign buyers. Apparently many non-residents were claiming the house owned in Canada as a principal residence. This would allow them to avoid paying any capital gains tax when they sold the house. This will no longer be allowed.

How much of an impact will this have on home buyers? A borrower that earns $100,000 a year with great credit and job history could qualify for a high ratio mortgage of up to $738,500 based on a 2.34% interest rate on a five-year term. After October 17th the same borrower would only be able to qualify for a maximum of $579,000. A difference of $159,500.

On a conventional mortgage before the change, the same borrower would be able to qualify for up to $932,900 on a 35-year amortization at 2.34%. Once the new rules go into effect they will only be able to borrow up to $579,000 on a 25-year amortization. The difference being they will be able to borrow $353,900 less than before.

These changes will probably have quite an impact on the housing market. Please contact me at 647-703-4962 if you have any questions about this article or mortgages in general.

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