There has been a slight panic in the mortgage industry in the first week of October when the Canadian federal government announced new regulations upcoming to make it A) harder for homebuyers to buy houses and B) more expensive for foreign homeowners to sell houses.
To put these two main points into consideration, here is my very simple explanation.
A) Qualifying Rate- Will now be based on the benchmark of a five year fixed rate. Benchmark rates are generally an average of lenders qualifying rates and typically are about 1.5% higher than the best rates a lender will give you. So, if you qualify for a mortgage at 4.5%, most likely you can get the loan for 3%.
What this means - Before, some lenders were only checking to see if you qualified based on the lesser number and rewarding you the mortgage. Now, all lenders will require homebuyers to be able to pay back a mortgage as if they were paying 4.5% interest. That doesn't mean you will have to pay 4.5%, it only means if the rates went up to 4.5%, you have to prove you could pay that at the end of your five year term.
What you can do - 1- after you get your pre-approval, don't go out and find the most house you can possibly afford. I tell this to all my clients anyways but most still do that. Look for what that suits you, not your pre-approval.
2- Haggle. ie; lower your offering price. Check out your local assessment website to see what the gov't believes the house is worth. Check out similar sales. If you qualify for $250K and the house you want is $250K, offer $220K. Real estate is not set in stone. Get the right price to hedge against future interest rate hikes. Too many times I've seen panic buying because someone 'really wanted that house'. We live in an impulse buying world right now but real estate, and the hundreds of thousands you will be on the hook for is not meant for impulse or panic buying.
B) Selling your Home - When you sell your home, which for most Canadians is their principal residence, you don't have to declare that income on your tax return and pay taxes on it. Now, if your home isn't truly your principal residence, you will be paying tax on the income received from the sale.
What this means - Before, foreign owners could purchase a home in Canada, say it was their principal residence and then sell it for a tidy profit because we, as Canadians, don't really check up on what exactly is considered a principal residence. If you might recall, this became a real issue for Mike Duffy, Conservative Senator, who listed his property on Prince Edward Island as his principal residence but actually lived mostly in Ottawa.
So, the loophole here was that foreign owners could buy a house in Canada, state it as their principal residence although they may only actually be in Canada for two weeks of the year. The house could sit empty for the other fifty weeks. They could then sell that house and not have to pay any tax on the sale. While this doesn't change the specifics of foreign ownership, it makes it no longer as lucrative for 'house-flippers'.
So, that's my quick takeaway from Monday's announcement. For most of you that read this, there is no real need to panic. I think as more people start to make offers better suited to their future income it might even bring real estate down a little. Not a lot, but a little. Which in the end, is good for home buyers.
No comments:
Post a Comment