Breaking: Effective Oct 17 - Qualifying for Mortgages Changing

[ee2k]

I know someone that owns multiple properties, and says that each one is his "primary residence" for when he sells and or gets mortgages on them. He used to say that Banks had no way to find this out.

So for those [local Canadian] sellers who are investors with multiple properties - and there are many of these in Calgary, this now suddenly closes the loophole, where Joe with 4 homes will now have to pay capital gains taxes on the other three when he sells because it's now recorded on his return.

[sputnik]

Originally posted by -relk-
IMO the way it should always have been. Seems to only apply for homes purchased with less than 20% down. A step in the right direction imo.

I personally think that 20% down should be REQUIRED.

[JohnnyHockey]

I put 5 percent down on my first house that cost $350,000 and I did just fine thanks...guess you never really had to struggle financially eh had everything handed to you? Probably lived at home till you were in your late 20s? 20 percent down is absolutely unrealistic for anyone who's lived on their since 18 and had to pay for university and coming out making $30-40,000 a year, what is the point of restricting this, it's an unnecessary barrier.

[blownz]

Originally posted by ee2k
I know someone that owns multiple properties, and says that each one is his "primary residence" for when he sells and or gets mortgages on them. He used to say that Banks had no way to find this out.

So for those [local Canadian] sellers who are investors with multiple properties - and there are many of these in Calgary, this now suddenly closes the loophole, where Joe with 4 homes will now have to pay capital gains taxes on the other three when he sells because it's now recorded on his return.

That isn't a loophole, just someone cheating the tax system. I hope guys like this get burned.

[JohnnyHockey]

That's actually called fraud and/or tax evasion.

[RealJimmyJames]

Doesn't the CRA have some kind of tip line where the tipster gets a portion of the money they are able to recover? Or is that a USA thing? Sounds like dude has evaded a lot of tax, report him, profit!

[HiTempguy1]

Originally posted by JohnnyHockey
I put 5 percent down on my first house that cost $350,000 and I did just fine thanks...guess you never really had to struggle financially eh had everything handed to you? Probably lived at home till you were in your late 20s? 20 percent down is absolutely unrealistic for anyone who's lived on their since 18 and had to pay for university and coming out making $30-40,000 a year, what is the point of restricting this, it's an unnecessary barrier.

Exactly. Its such a stupid, knee-jerk thing to say. The only way anyone could save that kind of cash in a NORMAL economy (not Alberta from 2003-2014, the economy was a rocket, very non-typical) would be to live at home with their parents until their student debts were gone and do nothing besides play video games. And for absolutely no reason

[ercchry]

5 years ago I did 5% on this house... just refinanced it for $250/month less since rates have dropped since then, only needed $20k (or $10k each... but women, amirite?!)

If I waited till I had 20% or $80k I probably would only be looking now for a place. That's 5 years of me paying someone else's mortgage that I wouldn't get back and oh wait... now I need $110k for the same house in today's dollars! So I guess I'm not buying that house yet... maybe one day I can get a condo instead

Yeah, I prefer the way I did it.

[rage2]

Originally posted by blownz
That isn't a loophole, just someone cheating the tax system. I hope guys like this get burned.

Originally posted by JohnnyHockey
That's actually called fraud and/or tax evasion.

Originally posted by RealJimmyJames
Doesn't the CRA have some kind of tip line where the tipster gets a portion of the money they are able to recover? Or is that a USA thing? Sounds like dude has evaded a lot of tax, report him, profit!

Doubt you even need to report it. There are so many red flag triggers, from the bank deposits to filing changes in principal residence which would pretty much guarantee an audit by the 2nd sale.

[JRSC00LUDE]

Originally posted by sputnik
I personally think that 20% down should be REQUIRED.

Just trying to keep a captive rental pool full or what?

How many people can afford to live, even meagerly, and save 60-80K for a starter home? Or did I miss something and you can get a good quality home for 75 grand again?

Originally posted by ee2k
I know someone that owns multiple properties, and says that each one is his "primary residence" for when he sells and or gets mortgages on them.

You have a friend who's either a liar, completely clueless as to what/how he is financing things or, who's going to get RAPED when he finally files 7 years of his taxes.....

[BrknFngrs]

Originally posted by sputnik


I personally think that 20% down should be REQUIRED.

While I don't disagree, I'd rather see CMHC go away and give the banks rate discretion and the related risk over their own lending book.

If the lenders are willing to lend to someone that can barely raise 5% then power to them, but if they decide they need 20%+ that would also be their prerogative.

[kaput]

.

[ee2k]

A 20% down payment may be doable if the market was full of homes in the $100,000s and $200,000s. It's a matter of time before those looking for their first homes are priced out of the market.

I do wonder though, when such announcements occur, aside from price, do we see shifts in interest from certain neighborhoods to others? Will see see more sales in places like Dover, for example, where people would say "I can't afford a house in Tuscany, so Dover will do?"

[HomespunLobster]

Or maybe introduce a scaling percentage based off of property value? At banks discretion, since they are the ones who are fronting the loan.

[Escape]

So if you're doing 20% down, you can still get approval based on discounted rate?

[TimLacroix]

Originally posted by Escape
So if you're doing 20% down, you can still get approval based on discounted rate?

At the moment it appears that the rate will be different with some lenders when 20% is applied for down payment or equity.

Again, there is a lot of fall out and details are still surfacing but at the moment this appears to be the case with some lenders.

If you have questions please reach out and we would love to assist.

[Sugarphreak]

...

[TimLacroix]

UPDATE Oct 5 - More to follow but thought I would get this out for the time being. -----

On Monday October 4th, Canada's Federal Finance Minister Bill Morneau has blind sided not only the Real Estate, Mortgage Industry and consumers... it appears that other stakeholders were surprised at the announcement too (insurers and lenders were not consulted and unaware of the impending change).

The Department of Finance (DoF) was looking to slow down the housing market and they may have just done it with these changes, in a big way. The rules will hit the mortgage market hard, but consumers will take the brunt of it. The two big changes are:

1) Effective Oct. 17, the qualification rate (currently today at 4.64%) will now apply to all insured mortgages (regardless of LTV, which is not the case today).

2) Regulators are banning a wide array of mortgages from being insured, effective Nov. 30 (see below).

In Calgary, Edmonton and pretty much most of Alberta, the timing of this announcement could not have come at a worse time. It's like getting kicked in the teeth while you were already down. This change will make homeownership less attainable for the marginal borrower, which is often younger Canadian first-time home buyers.

Consumer Choice

These changes are also going to take away choice for consumers as the majority of lenders that compete with the banks are now going to have a tough time with the following due to the changes for mortgages with more than 20% down payment or equity:
- Refinances
- Large Mortgages on Purchases over $1M
- Rental / Investment Properties

Effective Nov 30 the above changes will occur. Most people do not realize that many lenders (including banks) obtain bulk or portfolio insurance from CMHC, Genworth and Canada Guaranty on mortgage when more than 20% is applied. To understand or read more, click on read Changes to Low-Ratio Mortgage Insurance Eligibility Requirements

They are forcing all insured borrowers to qualify based on the posted rate of 4.64% instead of the actual negotiated rate, the changes are the equivalent of a jump of 2% in mortgage rates (Mind you, a 200+ bps hike in the next five years would probably cause a recession, so it’s unlikely at best.). Time will tell how many people will be forced out of the market but it is suspected that it could be 15 to 20% (mostly first time home buyers).

It is still too early to determine the full nuts and bolts of the changes as the lenders and insurers are still reviewing the changes and will likely be planning a meeting with Department of Finance (DoF) to raise concerns and clarification on the rules. This could spell trouble for consumer choice and competition for mortgage products, rates and overall solutions.

There are a few more other changes that I will post as the week goes on but wanted to start with the most impactful items. If you have questions, please reach out, we would love to assist.

[blownz]

Tim - you mention this hurts first time home buyers, but only for the short term. Longer term house prices will (should) drop back down so they can afford that same place again. I think the only people these changes really hurt are those that just recently purchased their first home. They didn't get in before it was too late, they overpaid for their house and that mistake will last much longer then the first time home buyer today that needs to wait 6-12 months longer to buy.


For the people saying all mortgages should be 20% down, I don't agree with that. I have no problem with 5% down, but I do have a problem when someone with 5% down gets the same rate (or better!) then someone with 20% or more down just because their mortgage is fully insured. Makes no sense to me.

[RealJimmyJames]

Jesus, and folks thought Stephen Harper was autocratic!