The federal government has announced new mortgage rules which will affect many Canadians. With the housing prices in Canada on the rise the government has been looking at whether Canadians can afford to pay for their mortgages if the interest rates increase. At the moment interest rates are as low as 2.5% which is a record low.
Under the new rules that began on October 17, 2016 anyone with an insured mortgage will have to go through a stress test. The test would show if they are still able to afford their mortgage if the rates were to increase to the Bank of Canada 5-year fixed rate of 4.65%. The rules also apply to those with over 20% down payment on their mortgage. The stress test also requires no more than 39% of the borrower’s income would be needed to pay for the mortgage and other housing costs.
Borrowers looking to get a low-ratio insurance will now have to have an amortization period of 25 years or under and the rules require the house to be the principal home for the borrower. The home price will have to be $1 million and under and the borrower will have to have a credit score of at least 600. The Total Debt Service which includes debt payments cannot go above 44%.
When it comes time to sell the property you will now have to report the sale to the Canada Revenue Agency. If the home sold was your principal residence then the sale would remain tax free. When the home is an investment property the home will be subject to tax on capital gains. This new rule will help with recovering taxes from foreign investors looking to make a quick turn around on their investment by claiming the home as their principal residence.
Finance Minister Bill Morneau insists these new rules will make Canada’s economy more stable for the future. This new system may help in the long-term with the debt Canadians put themselves in and only time will tell if it will benefit Canadians and our economy.