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THINGS YOU SHOULD KNOW ABOUT CANADA'S NEW MORTGAGE RULES
Homebuyers in Canada now face larger down payment requirements for properties over $500,000. The changes are intended to temper some of Canada's heated real estate markets. Here are five things to know about the new rules:
1. Upfront cash: Homebuyers now have to put a down payment of at least 5% for homes up to $500,000, and 10 % on the portion of the price of a home over $500,000.
For anyone buying a home for $700,000 — a common list price in Vancouver and Toronto — that means the minimum down payment will rise to $45,000 from $35,000.
Any home under $500,000 still requires only a down payment of 5 %.
With new rules, down payment of at least 20% is required for homes above $1 Million if financing is from a federally-regulated financial institution.
Those new rules might fuel more competition for condos and rare homes under $500,000, and under $1 million, among buyers with limited cash.
2. Market Impact: The influence the new rules will have over house prices is expected to be small, some experts estimate, given their narrow reach and higher demand. Those selling their homes in order to size up, especially in cities with hot housing markets, likely won't feel the pain since they've built up equity in those properties. When Finance Minister Bill Morneau announced the changes in December, he said they are expected to affect 1 % or less of the real estate market.
Past measures: Five rounds of changes were made to tighten eligibility rules for new insurable loans between 2008 and 2012. Among them are:
1. The maximum amortization period has been reduced to 25 years from 40 years.
2. Home buyers must have a down payment of at least 5% of the home purchase price and starting February 15, 2016, home buyers must add a further 10 % to their down payment for the portion of the house price between $500,000 and $999,999.
For non-owner occupied properties, a minimum down payment of at least 20 % is mandatory.
3. Canadians can now borrow to a maximum of 80 % of the value of their homes when refinancing, a drop from 95 %.
4. Limiting the maximum gross debt service (GDS) ratio to 39 % and the maximum total debt service (TDS) ratio to 44 %. These two important ratios are used when calculating a person’s ability to pay down debt. GDS is the share of a borrower’s gross household income needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. TDS is the share of a borrower’s gross income needed to pay for all debts, including those relating to home ownership.
5. Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. Borrowers buying homes at or above $1 million will need a down payment of at least 20 % if their financing is from a federally-regulated financial institution.
the minimum down payment was increased to 5%, the maximum amortization period
The banks’ prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI) has introduced new home equity lines of credit guidelines:
From June 2012, places limits on home equity lines of credit (HELOC). A homeowner can borrow no more than 65 % of the value of their property through a non-amortizing HELOC. Any additional mortgage credit beyond the 65 % of the property value on HELOCs should be amortized.
Historically, Canadians have been very prudent borrowers, and the best evidence of this is the mortgage-in-arrears statistics in Canada, which track the number of households that have not made mortgage payments in three or more months, showing that only less than half of 1 % of all mortgage holders with the country's largest banks are 90 days in arrears. This number has been stable for more than two decades, in times of high and low unemployment, high and low interest rates, and a strong or weak Canadian dollar.
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