As a result of the scorching Canadian real estate prices, the government of Canada has been looking at solutions to improve affordability. In our opinion, there is no such thing as a “Canadian” real estate market, but a tale of two markets; Toronto/Vancouver, and the rest of Canada. While Canada in general has realised modest price appreciation, these two cities have become “runaway trains” and have really challenged potential home buyers with regards to affordability. While we still believe that the issue is a lack of supply, and we oppose any foreign buyer tax (a topic we will cover in a future article), something has to be done in order for middle class Canadians to be able to afford a home. Saying that, the government of Canada has announced the following policy changes, effective October 17, 2016:
- Any instead of the rate their mortgage professional has been able to find them. This means that, while you will still enjoy the lowest rate your broker can find you, the government now wants you to pass a “stress test” to insure you are not at risk during a rate hike. As an example, if you commit to a 2.17% mortgage, you would have to now qualify for a 4.64% interest rate, in order to pass this “stress test”. This does not apply to mortgages where the buyer is putting a down payment of 20% or more.buyer with less than 20% down payment will now have to qualify for the Bank of Canada rate of 4.64%
- Insured mortgages are restricted to: properties under $1 million, 25 year amortization and the buyer credit score must be over 600 beacon.
- Sale of your primary residence must be disclosed to the Canada Revenue Agency (CRA) for review. The CRA will ensure that the home actually is a primary residence and not owned by a speculative foreign investor. If you own your home, and live in your home, you have nothing to worry about and will not pay Capital Gains tax.
- Banks will assume more risk when it comes to lending, thereby protecting the Canadian government.
How can you prepare yourself better in order to not worry about this new rules?
- The easiest way to avoid the new “hurdles” is to have 20% down payment. Even though you can still purchase a property with as little as 5% (ask us how), you make your life a lot easier by having the required amount. Review your savings plans and be really disciplined with how much you are saving for a down payment. If this is not feasible, there are ways that your immediate family can help to get you closer to your goal. Ask us about “gifts” and “gift letters”, as these are solutions that not many people are aware about, but we commonly use this technique to get people the home they fall in love with.
- Understand what your credit score is, how to improve it and how it impacts how much money you have access to. Credit scores also impact the rate you are offered by lenders, and it really is crucial that you take care of it. Pulling a credit report is relatively easy, but understanding how to change/improve this score can be a little confusing. Contact us for tips, tricks and suggestions to improve your credit score, and of course, the amount of money you will be lent. Keep an eye out for a future article discussing this topic.
- Have a plan. Purchasing a property is a major life step, and not one that can be taken in the spur of the moment. Lining up finances, credit scores and deciding where a good area is to invest in takes time, guidance and professional advice. If you are looking to get into the market, please give us a call so we create a plan for you and even possibly creating a pre-approval for you within days.
Please let us know if you have any questions or need any further assistance.
Bob Odanovic is a Realtor with REMAX Ultimate Realty Inc. Brokerage in Toronto, Canada. He is also an avid real estate investor throughout the GTA. Feel free to contact him with any questions at email@example.com.
Tony Agelopoulos is a Mortgage Agent with Dominion Lending Centres/Bedrock Financial, in Toronto Canada. He has owned and operated several investment properties throughout the city and understands how to get his clients the money they need. Feel free to contact him with any questions at firstname.lastname@example.org