Housing tax worries market

Economists, realtors, sellers and buyers are all wondering how the Canadian housing market will be affected by the Vancouver property transfer tax for foreign buyers.

At the beginning of August, the B.C. government introduced an additional 15 per cent property transfer tax on home buyers in the Metro Vancouver area.

Canadians and permanent residents of Canada are not subject to the extra tax and B.C. properties outside the Vancouver area are exempt.

This is the first time a tax on foreign home buyers has been introduced in Canada and it is still not clear how the rest of the country will be affected.

Foreign buyers could decide to buy properties in parts of B.C. not subject to the tax, such as Victoria, Kelowna or they may decide to invest their money in Toronto, further overheating the market there.

According to Brad Henderson, president and CEO of Sotheby's International Realty Canada, Toronto and potentially other cities such as Montreal will become more attractive because, in comparison, they will be less expensive.

"At the end of the day, the impact of the tax on foreign housing purchased in Vancouver remains to be seen,” says Jeremy Kronick, senior policy analyst at the C.D. Howe Institute, in a recent Globe and Mail article.

“Perhaps it will work out exactly as planned in that city.  However, what is playing out in Vancouver could well have unintended consequences across the country.”

Here are some highlights from Michael Campbell, our own economic consultant at Verico.

  • "So the question is, will adding $600,000 into the purchase of a $4 million home or putting an additional $1.5 million on a $10 million dollar home be enough to discourage foreign buyers and send capital elsewhere? 
  • “At this point we can only guess. But Toronto, Victoria, even Nanaimo, could be beneficiaries if foreign investors turn their attention elsewhere."

The Bank of Canada, The OED and CMHC are all worried about a property bubble while the municipal and provincial government seem determined to pop it.

The buyers who want lower prices ought to be wary of what the wish for. History has shown that sharp price drops as opposed to high prices in real estate can cause serious problems for the economy and financial system.

As for affordability, record low interest rates and massive in migration from other parts of Canada and Internationally are still likely to cause increased demand which will exceed supply.

For further information about this tax or purchasing a property, please call 250-862-1806 or email me.

Managing your credit

In the financial world, your credit profile is your reputation.

You don’t manage your credit applications and payments in a vacuum. Your credit behaviour is tracked by credit bureaus such as Equifax Canada and TransUnion of Canada.

This information is tabulated, and then you are assigned a credit rating. It’s important to maintain as high a rating as possible.

The following information shows you how you can be sure to earn a good score, and why it’s so important to do so. Lenders have access to this information. Think about it.

When you decide to apply for a mortgage for a home purchase, or a hefty loan for home renovation – don’t you want A+ right up there beside your good name?

Your good name is really what’s it’s all about. 

If you have a good record, it means smooth sailing for you. If your record isn’t all it should be, you might be in for a bit of rough weather when it comes to acquiring the monies you need -- at the interest rates you want.

Your payment history — especially of credit card debt — is one of the most important factors considered when your score is being tabulated. Any missed, late, or neglected payments are duly noted.

Not only does a prompt payment history buff your credit image — it saves you money in interest, and assures a quicker retirement of that debt, too.

Timeliness of payments, amount of payments, the state of your credit card balances versus credit available, the number of cards you own, the frequency of your requests for more credit – these are just some of the tidbits of personal financial information that make up your credit profile.

This comprehensive history is compiled to show lenders how reliable a debt risk you are.

They want to know whether you are credit worthy. Your credit score is established with a mathematical formula.

Various factors are weighed and balanced and given a certain percentage value towards your final score.

Credit bureaus also take into consideration your debt burden, your actual and potential income, your debt to income ratio, your past financial problems (any bankruptcy or foreclosure remains a long time on record), your job stability, essentially any public information that helps build an accurate risk assessment of you as debtor.

Your credit rating is a fluid and an ever-changing thing, dependent upon your present financial circumstances and any actions you make.

The credit bureaus always follow your money trail. Because the formation of your profile is ongoing, it’s vital for you to consistently practise reliable and responsible debt handling.

The good news? The ever-changing quality of your credit rating allows you to continually aim for a higher score. Think of your rating — not as a burden -- but as a challenge and an opportunity.

Infrequent requests for additional credit?

  • That’s a really good sign to a lender. Keep in mind that mortgage and loan shopping won’t impact you negatively if it’s done in a concentrated time period.
  • The credit bureaus interpret this flurry of activity positively — as long as it doesn’t occur too frequently. You want to look savvy, not desperate.

How much plastic is too much?

  • Too many credit cards red flag you to potential lenders. Limit your cards to three or four, and try to maintain longtime use of at least one card.
  • This is a key way to build up an excellent credit history. The amount of credit you use, versus credit available, is really telling too. Keep your balances low.

It’s your right to pull up your credit report profile and it’s in your interest to do so. 

Experts advise you to check it out at least once a year. Doing so gives you the opportunity to correct any errors or misinformation that may be there. Practice reliable and responsible debt management.

Then, when you do need money for a major undertaking (like the purchase of a home), your credit rating will be an asset, not a liability.

The stress of house buying

There are many stresses associated with home buying — both financial and emotional.

It doesn't help that the process comes with its own foreign language. While a mortgage broker can help de-mystify these terms, it helps to have a bit of a primer on what some of these terms mean.

After all, it's your money and your home we're talking about as a mortgagor; you have a right to understand what you're reading. (You didn't know you were a mortgagor? Read on.)

We'll start with amortization and term. Both refer to periods of time in the life of your mortgage, and you'll want to be sure that you understand the difference.

The amortization of your mortgage is the length of time that would be required to reduce your mortgage debt to zero, based on regular payments at a specified interest rate.

The amortization period is typically 15, 25 or even 30 years (conventional only), although it can be any number of years or part-years.

You can establish that you are able to make a certain payment each month of say $1,600 for your $300,000 mortgage at 2.49 per cent.

In this case, your amortization period will be just under 20 years.

Or you could tell your broker that you'd like to be mortgage-free in just 10 years. With an amortization period of 10 years at the same interest rate, your $300,000 mortgage will cost you about $2,825 per month.

That's a tougher monthly payment, but you would save thousands of dollars in interest. (More than $38,600 in fact).

As you arrange your mortgage, then, keep in mind that your amortization period may be fairly long.

The shorter you can make it, the less you'll wind up paying for your home in the long term.

The "term" of your mortgage will typically be shorter. The term is the duration of your mortgage agreement, at your agreed interest rate.

This will be a specific length of time, although you will have several choices. A six-month mortgage is a short-term mortgage.

A 10-year mortgage will be one of the longest terms, generally with a higher rate of interest to represent the higher degree of uncertainty in the economic outlook.

After your mortgage term expires, you will need to either pay off the balance of the mortgage principal, or negotiate a new mortgage at whatever rates are available at that time.

Now, back to the term mortgagor. This is one of three very similar terms: mortgagee, mortgagor, and mortgage.

A mortgagee is the lender of the money a bank, company, or individual.

A mortgagor is the borrower: the person or persons (or company) that is borrowing the money, and who will pay it back to the mortgagee.

The mortgage is, of course, the legal document that pledges the property as a security for the debt.

Still confused? Speak with a mortgage professional. Get the best mortgage suited to your needs and all your questions answered in plain talk.

You can call me at 250 862 1806 or email

Don't sell, reno

Anyone who has lived in the same house for a long time inevitably gets the reno itch.

While gutting a home is expensive, home renovations are still an affordable way to upgrade without moving.

It's natural that after a certain point, homeowners start to notice the flaws in their homes.

It could be that the layout is no longer practical, the bathrooms are outdated or the exterior needs some curb appeal.

Each of these areas can increase the property value of a house while making it more suitable to the homeowner's needs.

Before picking up the hammer and hardwood, experts recommend that homebuyers plan for the cost of a home renovation:

Consider upgrades that save money:

  • Green options, like installing insulated-glass windows may cost more initially, but they can make sense financially in the long-run when future energy bill savings are considered.

Research and budget for the unexpected:

  • The reality is that a home renovation often costs more than planned. Before starting any work, consult with more than one contractor to help accurately assess costs of materials and labour. It's also a good idea to build a buffer into the budget for any unexpected expenses.

Explore financing options:

  • A home equity line of credit (HELOC) allows homeowners to use the equity they've already built in their homes to finance upgrades at a competitive interest rate. Consider using a HELOC to pay different tradespeople as the work progresses to avoid paying interest on credit that hasn't been used.
  • With ongoing access to credit, it can be tempting to go overboard, so remember to stick to the budget.

For further advice on financing a renovation, contact me at 250-862-1806 or [email protected] and I will be happy to assist you.

More The Mortgage Gal articles

About the Author

Laurie Baird is a Mortgage Broker with Verico Complete Mortgage Services. She has been in the mortgage business since 1991 and a broker since 1997. 

As a Mortgage Broker she is able to match her clients' needs with a lender who will provide them with competitive rates and products.

Laurie has a Bachelor of Education degree from UBC.

Contact Laurie at 250-862-1806 or visit:

Visit Laurie's blog at: https://www.okanaganmortgages.com/blog

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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