1. If I have mortgage default insurance do I also need mortgage life insurance?

• Yes. Mortgage life insurance is a life insurance policy on a homeowner, which will allow your family or dependents to pay off the mortgage on the home should something tragic happen to you. Mortgage default insurance is something lenders require you to purchase to cover their own assets if you have less than a 20% down payment. Mortgage life insurance is meant to protect the family of a homeowner and not the mortgage lender itself.

2. What steps can I take to maximize my mortgage payments and own my home sooner?

• There are many ways to pay down your mortgage sooner that could save you thousands of dollars in interest payments throughout the term of your mortgage. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage). Another way to reduce the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. With accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year. In addition to increased payment options, most lenders offer the opportunity to make lump-sum payments on your mortgage (as much as 20% of the original borrowed amount each year). Please note, however, that some lenders will only let you make these lump-sum payments on the anniversary date of your mortgage while others will allow you to spread out the lump-sum payments to the maximum allowable yearly amount.

3. Can I make lump-sum or other prepayments on my mortgage, or will I be penalized?

• Most      lenders enable lump-sum payments and increased mortgage payments to a      maximum amount per year. But, since each lender and product is different,      it’s important to check stipulations on prepayments prior to signing your      mortgage papers. Most “no frills” mortgage products offering the lowest      rates often do not allow for prepayments.

4. How do I ensure my credit score enables me to qualify for the best possible rate?

• There      are several things you can do to ensure your credit remains in good      standing. Following are five steps      you can follow: 1) Pay down credit cards.      The number one way to increase your credit score is to pay      down your credit cards so they’re below 70% of your limits. Revolving      credit like credit cards seems to have a more significant impact on credit      scores than car loans, lines of credit, and so on. 2) Limit the use of credit      cards. Racking up a      large amount and then paying it off in monthly instalments can hurt your      credit score. If there’s a balance at the end of the month, this affects      your score – credit formulas don’t take into account the fact that you may      have paid the balance off the next month. 3) Check credit limits. If your lender is slower at      reporting monthly transactions, this can have a significant impact on how      other lenders view your file. Ensure everything’s up to date as old bills      that have been paid can come back to haunt you. Some financial      institutions don’t even report your maximum limits. As such, the credit      bureau is left to only use the balance that’s on hand. The problem is, if      you consistently charge the same amount each month – say $1,000 to $1,500      – it may appear to the credit-scoring agencies that you’re regularly      maxing out your cards. The best bet is to pay your balances down or off      before your statement periods close. 4) Keep old cards.      Older credit is better credit. If you stop using older      credit cards, the issuers may stop updating your accounts. As such, the      cards can lose their weight in the credit formula and, therefore, may not      be as valuable – even though you have had the cards for a long time. Use      these cards periodically and then pay them off. 5) Don’t let mistakes build      up. Always dispute      any mistakes or situations that may harm your score. If, for instance, a      cell phone bill is incorrect and the company will not amend it, you can      dispute this by making the credit bureau aware of the situation.

5. What amortization will work best for me?

• While the lending      industry’s benchmark amortization period is 25 years, and this is the      standard that is used by lenders when discussing mortgage offers, and      usually the basis for mortgage calculators and payment tables, shorter or      longer timeframes are available – to a maximum of 30 years. The main      reason to opt for a shorter amortization period is that you’ll become      mortgage-free sooner. And since you’re agreeing to pay off your mortgage      in a shorter period of time, the interest you pay over the life of the      mortgage is, therefore, greatly reduced. A shorter amortization also      affords you the luxury of building up equity in your home sooner. Equity      is the difference between any outstanding mortgage on your home and its      market value. While it pays to opt for a shorter amortization period,      other considerations must be made before selecting your amortization.      Because you’re reducing the actual number of mortgage payments you make to      pay off your mortgage, your regular payments will be higher. So if your      income is irregular because you’re paid commission or if you’re buying a      home for the first time and will be carrying a large mortgage, a shorter      amortization period that increases your regular payment amount and ties up      your cash flow may not be the best option for you.

6. What mortgage term is best for me?

• Selecting      the mortgage term that’s right for you can be a challenging proposition      for even the savviest of homebuyers, as terms typically range from six      months up to 10 years. The first consideration when comparing various      mortgage terms is to understand that a longer term generally means a      higher corresponding interest rate. And, a shorter term generally means a      lower corresponding interest rate. While this generalization may lead you      to believe that a shorter term is always the preferred option, this isn’t      always the case. Sometimes there are other factors – either in the      financial markets or in your own life – that you’ll also have to take into      consideration when selecting the length of your mortgage term. If paying      your mortgage each month places you close to the financial edge of your      comfort zone, you may want to opt for a longer mortgage term, such as five      or 10 years, so that you can ensure that you’ll be able to afford your      mortgage payments should interest rates increase. By the end of a five- or      10-year mortgage term, most buyers are in a better financial situation,      have a lower outstanding principal balance and, should interest rates have      risen throughout the course of your term, you’ll be able to afford higher      mortgage payments.

7. Is my mortgage portable?

• Fixed-rate products usually have a      portability option. Lenders often use a “blended” system where your      current mortgage rate stays the same on the mortgage amount ported over to      the new property and the new balance is calculated using the current rate.      With variable-rate mortgages, however, porting is usually not available.      This means that when breaking your existing mortgage, a three-month      interest penalty will be charged. This charge may or may not be reimbursed      with your new mortgage. While porting typically      ensures no penalty will be charged when you sell your existing property      and buy a new one, it’s best to check with your mortgage broker for      specific conditions. Some      lenders allow you to port your mortgage, but your sale and purchase have      to happen on the same day, while others offer extended periods.

8. If I want to move before my mortgage term is up, what are my options?

• The answer      to this question often depends on your specific lender and what type of      mortgage you have. While fixed mortgages are often portable, variable are      not. Some lenders allow you to port your mortgage, but      your sale and purchase have to happen on the same day, while others offer      extended periods. As long as there’s not too much time      between the sale of your existing home and the purchase of the new home, as      a rule of thumb most lenders will allow you to port the mortgage.      In other words, you keep your existing mortgage and add the extra funds      you need to buy the new house on top. The interest rate      is a blend between your existing mortgage rate and the current rate at the time you require the extra money.     

9. What steps can I take to help ensure I don’t become a victim of title or mortgage fraud?

• The best way to prevent fraud      is to be aware of how it’s committed. Following are some red flags for mortgage fraud: someone      offers you money to use your name and credit information to obtain a      mortgage; you’re encouraged to include false information on a mortgage      application; you’re asked to leave signature lines or other important      areas of your mortgage application blank; the seller or investment advisor      discourages you from seeing or inspecting the property you will be      purchasing; or the seller or developer rebates      you money on closing, and you don’t      disclose this to your lending institution. Sadly, the only red flag for      title fraud occurs when your mortgage mysteriously goes into default and      the lender begins foreclosure proceedings. Even worse, as the homeowner,      you’re the one hurt by title fraud, rather than the lender, as is often      the case with mortgage fraud. Unlike with mortgage fraud, during title      fraud, you haven’t been approached or offered anything – this is a form of      identity theft. Following      are ways you can protect yourself from title fraud: always view the      property you’re purchasing in person; check listings in the community      where the property is located – compare features, size and location to      establish if the asking price seems reasonable; make sure your      representative is a licensed real estate agent; beware of a real estate      agent or mortgage broker who has a financial interest in the transaction;      ask for a copy of the land title or go to a registry office and request a      historical title search; in the offer to purchase, include the option to      have the property appraised by a designated or accredited appraiser; insist      on a home inspection to guard against buying a home that has been      cosmetically renovated or formerly used as a grow house or meth lab; ask      to see receipts for recent renovations; when you make a deposit, ensure      your money is protected by being held “in trust”; and consider the      purchase of title insurance.

10. How do I ensure I get the best mortgage product and rate upon renewal at the end of my term?

• The      best way to ensure you receive the best mortgage product and rate at      renewal is to enlist your mortgage broker once again to get the lenders      competing for your business just like they did when you negotiated your      last mortgage. A lot can change over a single mortgage term, and you can      miss out on a lot of savings and options if you simply sign a renewal with      your existing lender without consulting your mortgage broker.

1. What’s the best rate I can get?

• Your      credit score plays a big part in the interest rate for which you will      qualify, as the riskier you appear as a borrower, the higher your rate      will be. Rate is definitely not the most important aspect of a mortgage,      however, as many rock-bottom rates often come from no frills mortgage      products. In other words, even if you qualify for the lowest rate, you      often have to give up other things such as prepayments and porting privileges      when opting for the lowest-rate product.

2. What’s the maximum mortgage amount for which I can qualify?

• To      determine the amount for which you will qualify, there are two      calculations you’ll need to complete. The first is your Gross Debt Service      (GDS) ratio. GDS looks at your proposed new housing costs (mortgage      payments, taxes, heating costs and 50% of strata/condo fees, if      applicable). Generally speaking, this amount should be no more than 32% of      your gross monthly income. For example, if your gross monthly income is      $4,000, you should not be spending more than $1,280 in monthly housing      expenses. Second, you will need to calculate your Total Debt Service (TDS)      ratio. The TDS ratio measures your total debt obligations (including      housing costs, loans, car payments and credit card bills). Generally      speaking, your TDS ratio should be no more than 40% of your gross monthly      income. Keep in mind that these numbers are prescribed maximums and that      you should strive for lower ratios for a more affordable lifestyle. Before      falling in love with a potential new home, you may want to obtain a      pre-approved mortgage. This will help you stay within your price range and      spend your time looking at homes you can reasonably afford.

3. How much money do I need for a down payment?

• The      minimum down payment required is 5% of the purchase price of the home. And      in order to avoid paying mortgage default insurance, you need to have at      least a 20% down payment.

4. What happens if I don’t have the full down payment amount?

• There      are programs available that enable you to use other forms of down payment,      such as from your RRSPs, a cash-back product, or a gift.

5. What will a lender look at when qualifying me for a mortgage?

• Most      lenders look at five factors when determining whether you qualify for a      mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history;      and 5. Value of the Property you wish to purchase. One of the first things      a lender will consider is how much of your total income you’ll be spending      on housing. This helps the lender decide whether you can comfortably      afford a house. A lender will then look at your debts, which generally      include monthly house payments as well as payments on all loans, credit      cards, child support, etc. A history of steady employment, usually within      the same job for several years, helps you qualify. But a short history in      your current job shouldn’t prevent you from getting a mortgage, as long as      there have been no gaps in income over the past two years. Good credit is also      very important in qualifying for a mortgage. The lender will also want to      know that the house is worth the price you plan to pay.

6. Should I go with a fixed- or variable-rate mortgage?

• The      answer to this question depends on your personal risk tolerance. If, for      instance, you’re a first-time homebuyer and/or you have a set budget that      you can comfortably spend on your mortgage, it’s smart to lock into a      fixed mortgage with predictable payments over a specific period of time.      If, however, your financial situation can handle the fluctuations of a      variable-rate mortgage, this may save you some money over the long run.      Another option is to opt for a variable rate, but make payments based on      what you would have paid if you selected a fixed rate. Finally, there are      also 50/50 mortgage options that enable you to split your mortgage into      both fixed and variable portions.

7. What credit score do I need to qualify?

• Generally speaking, you’re a prime candidate      for a mortgage if your credit score is 680 and above. The higher you can      get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage,      but the key for those with lower credit scores is the      size of the down payment. If you      have a sufficient down payment, you      can reduce the risk to the lender providing you with the mortgage.      Statistics show that default rates on mortgages decline as the down      payment increases.

8. What happens if my credit score isn’t great?

• There      are several things you can do to boost your credit fairly quickly.      Following are five steps you can use      to help attain a speedy credit score boost: 1) Pay down credit cards.      The number one way to increase your credit score is to pay      down your credit cards so they’re below 70% of your limits. Revolving      credit like credit cards seems to have a more significant impact on credit      scores than car loans, lines of credit, and so on. 2) Limit the use of credit      cards. Racking up a      large amount and then paying it off in monthly instalments can hurt your      credit score. If there is a balance at the end of the month, this affects      your score – credit formulas don’t take into account the fact that you may      have paid the balance off the next month. 3) Check credit limits. If your lender is slower at      reporting monthly transactions, this can have a significant impact on how      other lenders view your file. Ensure everything’s up to date as old bills      that have been paid can come back to haunt you. Some financial      institutions don’t even report your maximum limits. As such, the credit      bureau is left to only use the balance that’s on hand. The problem is, if      you consistently charge the same amount each month – say $1,000 to $1,500      – it may appear to the credit-scoring agencies that you’re regularly      maxing out your cards. The best bet is to pay your balances down or off      before your statement periods close. 4) Keep old cards.      Older credit is better credit. If you stop using older      credit cards, the issuers may stop updating your accounts. As such, the      cards can lose their weight in the credit formula and, therefore, may not      be as valuable – even though you have had the cards for a long time. Use      these cards periodically and then pay them off. 5) Don’t let mistakes build      up. Always dispute      any mistakes or situations that may harm your score. If, for instance, a      cell phone bill is incorrect and the company will not amend it, you can      dispute this by making the credit bureau aware of the situation.

9. How much will I have to pay for closing costs?

• As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximately $350).

10. How much will my mortgage payments be?

• Monthly      mortgage payments vary based on several factors, including: the size of      your mortgage; whether you’re paying mortgage default insurance; your      mortgage amortization; your interest rate; and your frequency of making      mortgage payments. You can view some useful calculators to find out your      specific mortgage payments: www.dominionlending.ca/mortgage-calculators

The Honourable Jim Flaherty, Minister of Finance, and the Honourable Christian Paradis, Minister of Natural Resources, today announced prudent adjustments to the rules for government-backed insured mortgages to support the long-term stability of Canada’s housing market and support hard-working Canadian families saving through home ownership.

“Canada’s well-regulated housing sector has been an important strength that allowed us to avoid the mistakes of other countries and helped protect us from the worst of the recent global recession,” said Minister Flaherty. “The prudent measures announced today build on that advantage by encouraging hard-working Canadian families to save by investing in their homes and future.”

“The economy continues to be our Government’s top priority,” continued Minister Paradis. “Our Government will continue to take the necessary actions to ensure stability and economic certainty in Canada’s housing market.”

The new measures:

• Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
• Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
• Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.

Our Government’s ongoing monitoring and sound underlying supervisory regime, along with the traditionally cautious approach taken by Canadian financial institutions to mortgage lending, have allowed Canada to maintain strong and secure housing and mortgage markets.

The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.

____________________________________
For further information, media may contact:

Annette Robertson
Press Secretary
Office of the Minister of Finance
613-996-7861

Jack Aubry
Media Relations
Department of Finance
613-996-8080

*BoC Keeps Key Rate Unchanged

The market widely predicted the Bank of Canada would not raise rates, and it was right. The BoC has left its key lending rate at 1.00%.

In turn, prime rate will remain at 3.00%, making today’s BoC meeting a non-event for mortgage holders in the short-term.

The BoC’s call comes amid languid recent growth and inflation numbers. Here’s a sampling of the Bank’s commentary from its official statement:

• The BoC sees a “weaker-than-projected recovery in the United States.” (No revelations there)
• The potential exists for “a more protracted and difficult global recovery.”
• “…domestic considerations…are expected to slow consumption and housing activity in Canada.”
• “Inflation in Canada has been slightly below the Bank’s July projection.”
• “The inflation outlook has been revised down and both total CPI and core inflation are now expected to converge to 2% by the end of 2012.” (That’s potential good news for mortgage rates)
• The 1% overnight target rate “leaves considerable monetary stimulus in place.”

The next and final interest rate meeting of 2010 is on December 7.

*BoC Keeps Key Rate Unchanged – Canadian Mortgage Trends – October 19, 2010

Click here to view article: http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2010/10/boc-keeps-key-rate-unchanged.html

Selecting the length of your mortgage amortization period – the number of years it will take you to become mortgage free – is an important decision that will affect how much interest you pay over the life of your mortgage.

While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 35 years.

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced.

A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value.

While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

Your mortgage professional will be able to help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, you can discuss opting for a shorter amortization period.

Advantages of longer amortization

Choosing a longer amortization period also has its advantages. For instance, it can get you into your dream home sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford. They then use this figure to determine the maximum mortgage amount they are willing to lend to you.

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer timeframe. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your dream home sooner than you thought possible.

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage.

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, your mortgage professional can ensure the mortgage you end up with will not penalize you for making these types of payments.

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is three, five, 10 years, etcetera). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage.

Canada’s Housing Market Remains Strong

Canada’s housing market remains healthy and stable. According to the International Monetary Fund, our housing market is fully supported by sound economic factors, such as low interest rates, rising incomes and a growing population. Moreover, mortgage arrears—overdue mortgage payments—have also remained low.

Today’s announcement is part of the Government’s policy of proactively adjusting to developments in the housing market that could take root and cause instability. These steps are timely, targeted and measured, and will reinforce the importance of Canadians borrowing responsibly and using home ownership as a savings mechanism.

Mortgage Insurance

Mortgage insurance (which is sometimes called mortgage default insurance) is a credit risk management tool that protects lenders from losses on mortgage loans. If a borrower defaults on a mortgage, and the proceeds from the foreclosure of the property are insufficient to cover the resulting loss, the lender submits a claim to the mortgage insurer to recover its losses.

The law requires federally regulated lenders to obtain mortgage insurance on loans in which the homebuyer has made a down payment of less than 20 per cent of the purchase price (also called high loan-to-value ratio loans). The homebuyer pays the premium for this insurance, which protects the lender if the homebuyer defaults.

The Government ultimately backs most insured mortgages in Canada. It is responsible for the obligations of Canada Mortgage and Housing Corporation (CMHC) as it is an agent Crown corporation. In order for private mortgage insurers to compete with CMHC, the Government backs private mortgage insurers’ obligations to lenders, subject to a deductible equal to 10 per cent of the original principal amount of the loan.

In October 2008, the Government adjusted its minimum standards for government-backed, high-ratio mortgages, including:

• Fixing the maximum amortization period for new government-backed mortgages to 35 years.
• Requiring a minimum down payment of five per cent for new government-backed mortgages.
• Establishing a consistent minimum credit score requirement.
• Requiring the lender to make a reasonable effort to verify that the borrower can afford the loan payment.
• Introducing new loan documentation standards to ensure that there is evidence of reasonableness of property value and of the borrower’s sources and level of income.

Measures Announced Today

Today, the Government announced three changes to the standards governing government-backed mortgages.

Qualifying at a Five-Year Rate

Current interest rates are at record low levels, which has improved the affordability of housing for Canadians. It is important that Canadians borrow prudently and are able to manage their debt loads when interest rates rise.

Lender and mortgage insurers look at two key ratios when assessing the ability of a borrower to make payments on a mortgage loan:

• Gross Debt Service (GDS) ratio—the ratio of the carrying costs of the home, including the mortgage payment, taxes and heating costs, to the borrower’s income.
• Total Debt Service (TDS) ratio—the ratio of the carrying costs of the home and all other debt payments to the borrower’s total income.

Currently, the interest rate used to determine the mortgage payment for these calculations is either the rate fixed for the term of the mortgage or, in the case of a variable-rate mortgage and mortgages with terms of less than three years, the greater of the contract rate and the prevailing three-year fixed rate.

The adjustments to the mortgage framework will require mortgage insurers to ensure that borrowers qualify for their mortgage amount using the greater of the contract rate or the interest rate for a five-year fixed rate mortgage when calculating the GDS and TDS ratios.

This measure is intended to protect Canadians by providing them with additional flexibility to support mortgage payments at higher interest rates in the future.

Limit the Maximum Refinancing Amount to 90 per cent of the Loan-to-Value Ratio

Borrowers seeking financial flexibility can currently refinance their mortgage and increase the amount they are borrowing on the security of their home up to a limit of 95 per cent of the value of the property. This type of refinancing lowers the borrower’s equity in their home. The adjustments today will lower the maximum amount of the mortgage loan in a refinancing of a government-backed high ratio mortgage loan to 90 per cent of the value of the property, consistent with the principle that home ownership is a tool for savings.

Discouraging Speculation by Requiring a Minimum Down Payment of 20 per cent for non-owner-occupied properties

This measure will require a minimum down payment of 20 per cent for government-backed mortgage insurance on non-owner-occupied properties purchased for speculation. Currently, borrowers may purchase a residential property with a 5 per cent down payment. Today’s change will require a 20 per cent down payment for small (i.e., 1- to 4-unit) non-owner-occupied residential rental properties. Borrowers purchasing owner-occupied residential properties which also include some rental units (e.g., borrowers purchasing a duplex to live in one unit and rent out the other) will still be able to access government-backed mortgage insurance with a 5 per cent down payment.

Moving to the New Framework

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010. Exceptions would be allowed after April 19 where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before April 19, 2010.

On July 23, 2009, British Columbia announced its plans to implement a Harmonized Sales Tax (“H.S.T.”) for B.C. effective July 1, 2010. The H.S.T. is a combination of the 7% Provincial Sales Tax (“P.S.T.”) with the 5% federal Goods and Services Tax (“G.S.T.”) for a single sales tax rate of 12%.

For consumers, goods and services (with some exceptions) will be subject to the H.S.T. in the same manner as they are currently subject to GST. This applies to real estate as well.

For both used and new homes, there are some extra costs for buyers or sellers but these are for the services required to buy or sell, not on the price of the home.

Buyers of used residential real estate can expect to pay H.S.T. on items such as home inspectors, appraisals and other such services. Lawyer fees will not change as they have been forced to charge P.S.T. for years.

Sellers of used residential real estate can expect to pay H.S.T. on realtor commissions, and any other services they may use (we can’t think of any).

H.S.T. has different implications for used residential real estate and new residential real estate. There are also different rules for commercial properties, mobile homes and other types of real estate. Below is an explanation of each situation.

USED RESIDENTIAL REAL ESTATE
There is no H.S.T. on the price of used residential real estate, much like the current rules regarding G.S.T. There are no extra closing costs on the purchase or sale of a used residential house, subject to the comments above.

NEW HOUSING
Here is where the costs will increase.

H.S.T. will be payable on the sale of new or substantially renovated homes, where the Contract of Purchase and Sale was entered into after November 18, 2009 and both ownership and possession of the home is transferred after June, 2010. H.S.T. will not be payable on sales of newly constructed or substantially renovated homes where ownership or possession of the home is transferred before July 2010, or where the Contract of Purchase and Sale is dated prior to November 18, 2009.

New Housing Rebate
The Provincial Government is proposing a New Housing Rebate (“the Rebate”) to ensure that purchasers of homes priced up to $525,000 would pay no more tax, on average, than under the current P.S.T.

The Rebate is 71.43% of the provincial component of the H.S.T. paid, up to a maximum of $26,250.00.

To illustrate this, let’s assume a purchaser is purchasing a new home for $500,000.00.

Note that in the above example the purchaser is paying about $10,000 more with the H.S.T. This is approximately 2% more than under the current G.S.T.

The government states that while sales of new homes in B.C. are not directly subject to the P.S.T., building materials used in the construction of homes are subject to the 7% P.S.T. The total amount of P.S.T., on average, embedded in the selling price of a new home is estimated to be equal to two percent. As a result, the government claims that purchasers of homes priced up to $525,000 would pay no more tax, on average, than under the current P.S.T. This of course assumes that the price of homes drop 2% due to the elimination of P.S.T. on building supplies.

Note also that the maximum rebate is $26,250.00. This means that the extra tax will increase dramatically for homes over $525,000.00. Consider the following example for a home priced at $900,000.00.

Using the above example, the purchaser of a new home priced at $900,000 will pay an additional $36,750.00 with the imposition of the H.S.T.

The new housing rebates would be federally administered in a manner similar to the G.S.T. rebates for new housing. Individuals would be able to file an application for the rebate directly with the Canada Revenue Agency. However, in the case of homes sold by the builder, similar to the G.S.T. new housing rebates, the builder would have the option of paying or crediting the new housing rebate to the purchaser at the time of purchase.

Other rebates
New housing rebates would be available for the provincial component of the H.S.T. paid for all types of housing eligible for G.S.T. new housing rebates. This includes rebates for the following:

New housing rebate – for purchasers of new houses together with leased land
New housing rebate – for purchasers of new mobile homes and floating homes
New housing rebate – for houses acquired through the purchase of qualifying shares in a housing co-op
New housing rebate – for owner-built homes
New rental housing rebates

Rather than retyping the government announcement on these rebates, please visit http://www.rev.gov.bc.ca/documents_library/shared_documents/HST/new-housing-rebates.pdf. This has complete details on all of the above rebates. It also has information on rentals of new homes by builder-landlords and purchaser-landlords, as well as transitional rebates for partially constructed homes.

We have been unable to find information related to the change in use of properties (primarily short term rental property).

The information you obtain at this blog is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice regarding your own situation.