The changing landscape for Canadian Home buyers

Starting in 2008, The Government has steadily reduced the maximum amortization rate from 40 years to 25 years. A 5 year amortization reduction has the equivalent effect on the amount of money a client qualifies to borrow as does a 1/2% interest rate hike.

1. Here’s the effect;

  • in 2007 a buyer with 10% down and a $100,000 gross annual income could get a maximum mortgage of $630,000 (at 4.99% amortized over 40 years) – payments of $446.26 per month.
  • In 2008 with the 5 year interest rate falling to 4.14% and the amortization period reduced to 35 years – that buyer would qualify for the same amount of mortgage, with payments of $449.08 per month.
  • In 2010 when interest rates dropped to 3.49% – the amortization maximum was reduced to 30 years with that same buyer still only qualifying for the same amount of mortgage – with payments of $447.09
  • In 2016, PRE October – that same buyer with a maximum amortization period of 25 years and an interest rate of 2.49% STILL only qualifies for a $630k mortgage.

2. In 2012, the feds introduced legislation impinging on the almost 3 million self-employed workers’ ability to get a ‘stated income’ mortgage. Under this law (B-20) they can borrow only 65 per cent of the purchase value – without requiring default insurance from Canada Mortgage Housing Corp., Genworth Canada or Canada Guaranty. If you have less than 35-per-cent down, your mortgage now has to be insured under specific guidelines. And here’s another twist – CMHC will allow a stated income application as long as you have been self-employed for less than three years. More than three years and you have to qualify according to your net taxable income. Line 150 on your tax return – which despite the ability to carry a large mortgage payment, accountants cleverly work the numbers – legally – to show a lower income with the objective of reducing the already too large income tax load.

3. 2014 additional tightening of rental income calculations – basement suites and additional properties)

4. New rules are in place now regarding the ‘portability’ of your mortgage. If you are attempting to escape the sometimes criminal payout penalty banks charge, by porting your mortgage to a new property and combining that with an additional mortgage to meet the purchase price, you may now have to re-qualify under the new tougher mortgage guidelines.