Home dreams in jeopardy

The federal government has announced new rules to try and cool the heated real-estate markets in Vancouver and Toronto. 

The change limits the foreign money going into the Canadian real-estate market by closing a “loop hole” that was allowing non residents to purchase a “home” in Canada.

It exempted the property from taxable capital gains upon its sale by deeming it their residence. 

The other change announced by the government recently was the “stress test” for high ratio buyers. 

 "Overall, I believe the housing market is sound, but as minister of finance, I want to make sure we are proactive in assessing and addressing the factors that could lead to excess risk," Finance Minister Bill Morneau said in Toronto.

The government has introduced changes to qualifications to ensure that buyers purchasing homes at the high prices and low interest rates are able to make their payments when interest rates rise. 

Currently, if a purchaser with less than 20 per cent down payment buys a home and takes a mortgage term of five years or more, the lender and insurer qualify them at the interest rate they obtain. 

The current rate for a five-year fixed mortgage is about 2.44 per cent. The new rules will require that the borrower is qualified at the Bank of Canada’s Benchmark rate, which is currently 4.64 per cent. 

This rate is used right now to qualify high-ratio buyers who want to take short term or variable rate mortgages.

This change in qualification will have a dramatic affect on the buying power of a purchaser. 

For example, if a couple were to buy a property today and had $80,000 in income and no debts, they would qualify for a home of approximately $520,000 with $27,000 down payment and a  $493,000 mortgage. 

This is with using $200 per month for taxes and $120 for heating. 

If this same couple waited until today to apply, they would only qualify for a  $430,000 property with the same $27,000 down and a mortgage of $403,000. 

This change means a drop in buying power of $90,000 for a couple making $80,000. 

This will force a lot of first-time buyers and move-up buyer with low equity to rethink their dreams to purchase a home. 

That means they will have to purchase a property that is 17 per cent less. 

With the real estate market having increased by 20 per cent in 2016 they may not be able to find something they can qualify for.

 If you have any questions about these changes please email [email protected] or call 250-862-1806.

Mortgage methods

How can you pay off your mortgage more quickly?

Most homeowners would love nothing more than not to have to put that monthly mortgage cheque in their account.

Trying to pay off your mortgage ahead of schedule is not something to be undertaken lightly. You must make sure you are financially secure, with no other significant debt, and have money in reserve for emergencies.

There are also compelling arguments for not paying off your mortgage ahead of schedule. For instance, you may want to enjoy your money now.

By allotting less of your income toward your mortgage, you have more money available for vacations and other uses. Or you could use the money for home improvement, which can make your home more comfortable and valuable when you are ready to sell.

In your haste to be rid of your monthly mortgage burden, you cannot afford to mortgage your financial future. Make sure you will be able to finance your children’s college education and your own retirement.

However, if you are in a debt-free financial position where you can pay off your mortgage more quickly without sacrificing other aspects of your life, there are ways to accomplish this.

Naturally, you will have to consult your mortgage broker to see what you can and cannot do.

Here are a few of the more popular options.

  • Increase your payment schedule. Bi-weekly mortgage payments have become increasingly popular as a way to pay off a mortgage more quickly.
  • This will allow you to make one extra full payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan.
  • Signing up for a bi-weekly or accelerated mortgage payment program will not only help you save money and cut the term of your loan down, but it they will also help you build equity into your home faster.
  • Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to make lump-sum payments at specific times.
  • For example, you could earmark your bonus check of $5,000 to pay off part of your mortgage.
  • A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing.This saves you money over the course of your mortgage.
  • Shorten the time frame of your loan. You could elect to refinance and change your 35-year mortgage to a 15-year mortgage. Bear in mind, though, that your monthly payments will be considerably higher.
  • Increase your paymentsIf your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments.
  • Most loans will allow you to increase your payments in this manner with certain restrictions.
  • Refinance at a lower interest rate, but pay the same amount each month as you did before.
  • If you maintain a 35-year mortgage, but the interest rate drops from 3.85 per cent to 2.49 per cent, the money you were paying in interest can now be applied to the principal.

Remember, the first step is to make sure you can afford to pay off your mortgage more quickly.

If you can, talk with your mortgage broker to find out which of these strategies is best for you.

Please call to meet to arrange a strategy to suit your needs (250 862 1806) or email [email protected].

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.

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.

Previous Stories