Mortgage qualifying just got a little harder…what does this mean?
The Department of financing has surprised us with a few changes that will be effective coming up October 17th, 2016. These changes were made to cool the markets in Vancouver and Toronto but will most likely have an effect more so on the regions outside of these markets. These include:
- Stress testing for ALL insured mortgages starting Oct 17th, this means that even the 5 year rate will be subject to a 4.64% “qualifying Rate” at the time of purchase. This isn’t what the actual rate is but it does reduce the amount one can qualify for vs using current rates (around 2.39% today).
- Reporting of a principle home sale is mandatory requirement with CRA, you will then be granted an exemption for capital gains if you qualify, it not you will be required to pay capital gains even if it was your primary residence. This will be determined through a series of questions your accountant will ask.
There are other changes as well (full details here http://www.cbc.ca/news/business/ottawa-housing-tax-real-estate-1.3788725 )
Most of my clients typically don’t see their absolute max approval when they purchase a home so even though the qualifying rate is higher and it can drop a potential approval down 100k, only a small portion of people will be affected directly by this. I do see this being a bit more difficult on the sales side where sellers will be forced to reduce their prices in order to conform to the market so any gap will be closed partially due to this.
What should you do!?
Talk to a Mortgage Specialist– This is something everyone should do the moment they are thinking they would like to purchase a home, even if it is a year or two away…why? Because they can help you plot out and plan a course of action, this could be: Savings plan, debt reduction plan, credit rebuilding or strengthening plan, income planning (for business for self clients). There are so many variable to consider so having someone look at your application and tell you what you need to do will save you a lot of time and potential down the road headaches or road bumps.
Changes will always happen and we will always have our reservations on them BUT in the long run we make the best of it and keep pushing forward!