Changing rules have an impact on real estate

Real estate rules

Both the federal and provincial governments have introduced several new legislative changes that will impact the real estate market for homeowners, homebuyers and investors.

Most of these new measures have been put in place to temper the Canadian real estate market that has been growing at unprecedented rates for more than 20 years and has caused major home affordability issues for most Canadians.

Here’s what’s new:

Foreign buyers are now banned from buying Canadian residential properties for two years

The foreign buyer ban came into effect Jan. 1 and carries a large penalty of $10,000 for anyone found breaking the rules or even assisting with breaking the rules.

One of the ongoing narratives behind the rapid appreciation in Canadian home prices is that Canadian real estate attracted foreign buyers and investors. When foreign investors purchase properties, it creates more competition for Canadian residents and citizens (and Canadian investors) so after trying, and failing, multiple times to levy additional taxes to discourage foreign buyers, there is now a total ban on foreign buyers for a two-year period.

Now, only Canadian permanent residents and citizens can purchase residential properties. However, there has been a growing list of exemptions to exclude foreign workers, some students, and even certain property types from the ban.

New anti-flipping tax

Reality TV series have been showing us for years how you can buy a property, fix it up and sell it for a profit within a short period of time. But in Canada, the Canadian Revenue Agency has been keeping a close eye on home flippers.

In the past, flippers and investors may have been able to use tax loopholes such as declaring profits from a flip as capital gains or even using the personal residence exemption, which is intended to give homeowners a tax break when selling their primary residence, Under the “anti-flipping tax” rules, the CRA will now consider all profits generated from selling a property owned for less than 365 days as personal income.

Also, under the new rules, if you have owned the property for less than 365 days, you’ll pay taxes on the full profits, at your personal tax rate. Some exceptions may apply, of course.

Cooling-off period for homebuyers

B.C. is the first province to introduce a “cooling-off period” for homebuyers. Homebuyers will now have a three-day grace period where they can change their mind after their offer has been accepted.

The three-day period isn’t meant for buyers to just walk away from a deal (in hindsight they do not like), and walking away won’t come for free. If a buyer decides to walk away during the three-day cooling-off period, they will still owe the seller 0.25% of the selling price as a “breakup” fee.

I highly recommend anyone who is looking to purchase real estate enlist the assistance of the a professional – a mortgage broker, a realtor, a real estate lawyer or an accountant.

If you have any questions regarding how the new changes will affect your mortgage qualification, please reach out to me at [email protected] or you can book a time for a chat at www.calendly.com/april-dunn.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


The problem with early mortgage renewals

Renewing your mortgage

Is your mortgage renewing this year?

If so, many lenders are contacting their mortgage clients well in advance of the renewal date to offer an early renewal. No doubt you will be facing a much higher interest rate, so an early renewal offer might be tempting for many homeowners to consider.

You may have concerns that interest rates may be higher if you wait until your renewal date. However, renewing your mortgage early can actually be a costly decision, and it's important to understand why this is the case before making any decisions.

One reason why renewing your mortgage early is not a good idea is that the new higher rate will be effective immediately. Your bank will not hold today’s rates for you until the end of your current mortgage term. If you have a lower rate and are now renewing into a higher rate, you will lose the benefit of the lower rate from now until the actual renewal date because the higher early renewal rate will be set right away.

That will immediately increase your interest costs and you may also be facing a higher mortgage payment immediately.

Another reason why renewing your mortgage early is not a good idea is it can be risky. Interest rates are constantly fluctuating, and if you renew your mortgage early and rates go down, you could end up paying more for your mortgage in the long run.

So, what can you do without renewing your mortgage early? As a mortgage broker, I can provide a rate hold, which allows you to lock in a rate, typically up to 120 days. That means that even if rates go up, you'll still be able to take advantage of the low rate you locked in.

That then allows you to keep an eye on the market and make an informed decision about when to renew your mortgage, without the risk of rates going up while keeping the benefit of your current lower interest rate to the end of your current term.

As your mortgage broker, I can shop around for the best rates and help you understand the various terms and conditions of different mortgages, so you can make an informed decision to ensure you are in the best mortgage product for both your short-term and long-term goals.

Renewing your mortgage early can be a costly and risky decision. Instead, consider working with a mortgage broker to take advantage of the best mortgage rates without renewing your mortgage early.

If you would like to discuss possible options for your upcoming mortgage renewal this year, please book a time here on my calendar for a quick chat.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Mortgage brokers offer flexibility banks often can't match

Mortgage broker or bank?

Whether you are thinking about purchasing a new property or planning to consolidate some of your high interest credit card debt, your first thought might be to connect directly with your bank.

Please read this article first as it could save you some time and money and explain why working with an independent mortgage professional is really in your best interest. You may also want to check out the online reviews for your current financial institution as part of your decision making process.

Mortgage brokers are independent, trained professionals who are licensed to represent and provide you with the best advice for your mortgage needs. We deal with many different financial institutions and this allows us to offer you more choices and generally more competitive rates.

It also means that our advice is impartial and based on whatever is in your best interest and not what is best for your bank.

We represent you and not the lender. (We must also keep the lender’s best interests in mind and do our due diligence of course.) We are not employees of any lending institution. Bank employees are salespeople for the bank and are not highly trained mortgage professionals.

The fact is each bank branch acts as a separate profit centre independent of its head office. They are rewarded and paid based upon the profitability of their overall mortgage portfolios.

As a mortgage broker, I will offer you the best terms and rates upfront. This doesn’t always happen at a bank. It is not in their best interests to offer you the best rates or direct you to another lender if they think the other lender has a better product.

A bank branch also has limited access to mortgage products as it can only offer what’s available in its portfolio and unfortunately as mortgage brokers, we often see clients who have been placed into restrictive mortgage products based solely on low rates that were being promoted by banks.

We can sort through dozens of lenders in the time it takes you to book an appointment at your bank. Shopping for mortgages can be time consuming and frustrating if you do it yourself. We know the quality of products offered by the various lenders and can quickly shortlist the ones that best match your needs. You’ll end up with the best features and rate, all in one stop.

The entire process can be completed securely online from the comfort of your own home within hours that work for you.

Mortgage brokers deal with the same reputable, established Canadian financial institutions you deal with every day but we also have access to some innovative broker-only lenders who sometimes offer even more attractive rates and features. We also work with alternative lenders for those who don’t fit within the bank box.

The best part is there is no cost to you for allowing us to assist. In most cases it’s the lender who pays our fees.

Please give me a call at 1-888-561-2679 or you can book a time here on my calendar www.calendly.com/april-dunn to arrange a no obligation consultation, whether you are buying a home, renewing an existing mortgage or looking for additional funds.

We can review all of your options so you can make your best decision on the largest financial transaction of your life.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.


How mortgages have changed over the years in Canada

The evolution of mortgages

There have been many changes to insured mortgages over the years. Amortizations have been reduced, premiums have increased and some programs have even been eliminated.

To put things into perspective, I thought it would be interesting to take a look back to how the insured mortgage market has changed in Canada since its inception in 1954 as there have been many changes to the mortgage insurance program since it was first introduced to improve accessibility to homeownership for Canadians.

Prior to 1954 it was extremely difficult to buy a home in Canada unless you had cash. Lending practices were extremely stringent and you needed a minimum 50% down payment and the payments were very high.

The National Housing Act was passed in 1954 which introduced mortgage insurance to Canada. The program compensated lenders if a homeowner defaulted. The other goal was to bring the chartered banks into residential mortgage lending and to reduce dependence on public funds. Prior to this date, life insurance companies had been the largest private mortgage lenders in Canada.

Originally only new homes could be insured under the program and they had to meet NHA housing standards. The target demographic was lower middle income families and all lenders had to be approved by CMHC. CMHC also set the maximum rates that could be charged on the mortgages which at that time was 6%. This ceiling was eliminated in 1969.

Here’s timeline of some of the note-worthy changes:

  • In 1966 existing homes became eligible for insurance under the NHA.
  • In 1969 lenders were allowed to reduce the minimum term on a mortgage from 25 years to 5 years. Shorter terms were then allowed in 1978 and then 1980.
  • Variable rate mortgages only became eligible for mortgage insurance in 1982.
  • In 1992, 95% financing was introduced for first time homebuyers only and that restriction was removed in 1998.
  • In 1995 GE Capital entered the mortgage insurance market and in 2002 introduced their Alt-A business-for-self program.

Since 2008 there have been other big changes to insured mortgages including: Amortizations being reduced to 25 years from 40 years

  • The elimination of zero down payment programs
  • The maximum amount you can borrow for a refinance is now 80% of the value of the property. Reduced from 95%.
  • Insurance is now only available on properties with a value less than $1 million.
  • As of December 2015 there are now changes to the down payment requirements to 10% from 5% for the portion of a home’s value from $500,000 to $1-million.
  • In October 2016 the stress test was introduced. All insured mortgages must now be stress tested using the 5-year posted rate (qualification rate)
  • In January 2018 the new stress test now requires insured mortgages to qualify using the higher of their contracted mortgage rate plus 2.00% or the 5-year benchmark fixed rate published by the Bank of Canada. With further changes being implemented both in 2020 and 2021 for both insured and uninsured mortgages.

Mortgage insurance options will no doubt change again according to market conditions whether it be the requirement for higher down payments or higher insurance premiums but the available options have definitely changed for the better with the introduction of mortgage insurance allowing more Canadians the choice of home ownership.

If you would like more information on mortgage insurance in Canada please give me a call at 1-888-561- 2679 or email [email protected]???????

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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