November 30th marks the date when the new “stress test” is enacted for high ratio mortgages. The new criteria will affect first time buyers and home owners wishing to finance their home with less than a 20% down payment. This move by the Federal Government is just one of a few more changes that will affect home buyers and have been announced in the last few months.
High Ratio Stress Test
Buyers with a down payment between 5% and 20% of the purchase price have mortgage insurance to protect the lender in the event that the home buyer defaults. These loans are known as “high ratio” mortgages.
Mortgage insurance in provided by CMHC (Canadian Mortgage and Housing Corporation) or through private lenders Genworth Finance and Mortgage Company or Canada Guaranty Mortgage Insurance Company.
The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada.
Other aspects of the stress test require that the home buyer will be spending no more than 39 per cent of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44 per cent.
PROVINCIAL LAND TRANSFER TAX CREDIT INCREASE
The provincial government has doubled the land transfer tax credit (LTT) to $4000 for new home buyers. Effective January 1, 2017, the maximum purchase price for a first time home buyer is $368,333 to receive the full tax credit.
However there are some changes in the property tax structure.
· Homes valued over $2million – LTT increases from 2% to 2.5%.
·“All other types of property” (commercial, industrial, multi-residential and agricultural properties), LTT increases from 1.5% to 2.0 on values over $400,000.
SIMCOE COUNTY HOME OWNERSHIP PROGRAM
I have been wanting to write about this for a few months now. This little-known program has been in existence for years. The objective is simple – The County of Simcoe will provide loans to renters for their down payment for a qualified home. This loan is interest free and forgivable if you reside in the home for 20 years. If you do sell the home before the 20-year period your loan is due plus 10% of your realized capital gain on the home.
Here are the basics:
· Must be in rented accommodation (not living with Mom and Dad)
· Must be pre-approved for a mortgage
· Maximum purchase price is $353,944
· Maximum loan is 10% or purchase price to a maximum of $35,394
· Maximum personal equity is $20,000
· Maximum household income is $72,900
· Homes must meet a specific criteria and be located in Simcoe County
This program is self-funding and does have a wait list. However for most people looking to buy their first home or get out of renting, the wait period allows for time to research their housing alternatives.
Overall the Government is attempting to slow the housing market delicately with some blunt instruments with the eye on the little guy trying to establish themselves. Will they be effective… only time will tell?
Sales Representative for Royal Lepage Locations North