MPC Calls for Halt to Further Mortgage Tightening

Mortgage Professionals Canada has asked the Department of Finance for a moratorium on mortgage rule changes until the effects of the current changes are known. Speaking before the Standing Committee on Finance this week, MPC CEO Paul Taylor spoke to the association’s key concerns about the new rules and its hope that certain aspects will be revisited. “The recent changes are having a cumulative negative impact on the mortgage market and ultimately on the Canadian consumer,” MPC president and CEO Paul Taylor said. “We are asking for slight amendments to the portfolio insurance eligibility guidelines, and to wait for the remaining existing changes to make their way through the market before implementing any further changes.”

home   A credit report is a detailed up-to-date report of your credit history. It shows banks/lenders the level of risk if they lend you money. It is also an indicator of how consistently you pay off your bills and debts. Your credit score is one of the factors lenders consider when qualifying you for a mortgage. A good credit score, for example, can help improve your chances of being approved. To find out your credit score, contact Canada's two credit-reporting agencies: Equifax Canada andTransUnion Canada. These agencies can provide you with an online copy of your credit score as well as a credit report - a detailed summary of your credit history, employment history and personal financial information. If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately.

Improving Your Credit Score

  • If your credit score is not as high as you think it should be, make sure that the information in your credit report is correct. If it is correct, read your report carefully to find out which factors are most likely having a negative influence on your score, and then work to improve them.Here are some tips, from the Financial Consumer Agency of Canada (FCAC), on how to improve your credit score:
    • Always pay your bills on time. Although the payment of your utility bills, such as phone, cable and electricity, is not recorded in your credit report, some cell phone companies may report late payments to the credit-reporting agencies, which could affect your score.
    • Try to pay your bills in full by the due date. If you aren't able to do this, pay at least the required minimum amount shown on your monthly credit card statement.
    • Try to pay your debts as quickly as possible.
    • Don't go over the credit limit on your credit card. Try to keep your balance well below the limit. The higher your balance, the more impact it has on your credit score.
    • Reduce the number of credit applications you make. If too many potential lenders ask about your credit in a short period of time, this may have a negative effect on your score. However, your score does not change when you ask for information about your own credit report.
    • Make sure you have a credit history. You may have a low score because you do not have a record of owing money and paying it back. You can build a credit history by using a credit card.
    • Once your credit score has improved, work with a mortgage professional to obtain a mortgage that meets your individual needs.

By Gabor Palos - D&H Group LLP, Chartered Accountants

Owners of residential rental properties often spend significant money on the maintenance and improvement of their investments. And they often wonder whether they can deduct these expenditures on their income tax returns.

The answer is: it depends! The tax rule says that the cost of maintenance is deductible, but capital expenditures are not. How to tell the difference? Well, the difference is not always obvious and for that reason this area is the subject of frequent controversy between taxpayers and the Canada Revenue Agency (CRA). Minor repairs and routine maintenance are considered “current expenses” and are deductible when incurred. A current expense simply restores the property to its original state, and has little or no long- term effect. These expenses usually recur after a relatively short period of time. On the othhammerer hand, renovations that extend the useful life of the property and improve it beyond its original condition are considered “capital expenditures” and are not deductible when they are incurred. Instead, these expenditures may be deducted in small portions over time by claiming “capital cost allowance” (tax depreciation). CRA provides some examples of current and capital expenditures in its interpretation bulletin: Painting the interior or exterior walls, repairing wooden steps, or replacing an old floor or a roof (unless the new floor or roof is clearly of better quality and greater durability) are all current expenses.

Video #2 - Gross Debt Service Ratio and Total Debt Service Ratio

It's a good idea to understand how the bank/lender will calculate the maximum amount they will loan you for a mortgage. The two calculations a bank/lender calculates are: your gross debt service ratio (GDS) and your total debt service ratio (TDS). To see how both calculations work, watch the video and read more below.

Gross Debt Service Ratio (GDS)

To calculate your GDS, lenders try to figure out how much you would be paying each month to own a particular property. First, the lender will estimate your monthly mortgage payment, property taxes, and utilities. The lender will then add that up and divide it by your gross monthly income. If the answer equals less than 32 per cent (industry standard), the lender can feel confident in your ability to pay your monthly housing costs.

Total Debt Service Ratio (TDS)

To calculate your TDS, the lender will take the same GDS calculation but add in any other monthly payments you might have to make, including loans or the minimums on any credit card debt.

Video #3 - Using Your RRSP's for Your Down Payment.

One great source of funding for your mortgage down payment is a Registered Retirement Savings Plan (RRSP). The Canadian Government's Home Buyers' Plan (HBP) allows you to borrow up to $25,000.00 from your RRSP for a down payment, tax-free. However, since the HBP is considered a loan, it must be repaid within 15 years. To learn more about the eligibility requirements and repayment term, watch the video below.

First-Time Homebuyer Eligibility

In order to be eligible as a first-time homebuyer, you must meet the following criteria:
  • Not owned a home within the previous four years
  • Sign a written agreement to buy a home
  • Intend to live in the home within one year of purchase
  • If you have used the Home Buyers' Plan before, you cannot have any outstanding balance due
  • You must make the withdrawl from your RRSP within 30 days of taking title of the home
  • You must buy the home before October 1st of the year after you made the withdrawal
If you are buying with a partner, each spouse needs to qualify as a first-time homebuyer, in order for you both to withdraw from your individual RRSPs. For example, if you have owned a home in the last four years but your spouse has not, then your spouse would be able to withdraw money from their RRSP under the Home Buyers' Plan, provided you and your spouse have not been living together in the home you owned.

Video #4 - Should You Select a Fixed or a Variable Rate When You Obtain Your Own Mortgage?

One of the first decisions homebuyers and mortgage shoppers face is whether to select a fixed rate or variable rate mortgage. With a fixed rate mortgage, the mortgage rate and payment you make each month will stay constant for the term of your mortgage. With a variable rate mortgage, however, the mortgage rate will change with the prime lending rate as set by your lender. A variable rate will be quoted as Prime +/- a specified amount, such a Prime - 0.45%. Though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term. This video explains the 2 options in more detail.

Comparing Fixed and Variable Mortgage Rates

You can think of the difference, or spread, between variable and fixed mortgage rates as the price of insurance that lending rates will not increase, more or less. When interest rates are low and are not expected to fall further, it is generally advised to lock in a fixed rate, as variables rates will, at best, stay the same, or increase. On the other hand, if you expect interest rates to fall with some certainty, then a variable rate is preferred, as you will be able to absorb the benefit of paying lower interest. Similarly, if the difference between the variable rate and the fixed rate is significant, it may not be worth paying the premium for the stability protection of a fixed rate.

Video #5 - Do I Need Mortgage Default Insurance When I Transfer The Property Into My Name?

Mortgage default insurance, commonly referred to as Canadian Mortgage and Housing Corporation (CMHC) insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders if a homeowner defaults on their mortgage. To understand how it is calculated and paid for, watch the video below. Although mortgage default insurance costs homebuyers 1.75% - 2.75%1 of their mortgage amount, it is actually beneficial to the buyer market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by default insurance, as the risk of default is spread across multiple homebuyers.

Who Offers Mortgage Default Insurance?

In Canada, mortgage default insurance is provided by CMHC (Canada  Mortgage and Housing Corporation), Genworth Financial and Canada Guaranty  Mortgage Insurance. canada-guaranty-logogen financial

cmhc logo

How Do You Pay Mortgage Default Insurance?

Mortgage default insurance is financed through your mortgage. Unlike closing costs such as lawyer fees and land transfer tax, it does not require a lump sum cash outlay at the time you purchase your home. Your insurance premium is added to the value of your mortgage, and your monthly payment increases accordingly. Continuing with the above example, the revised mortgage amount would be $260,000 + $5,200 = $265,200.

Video #6 - Land Transfer Tax (LTT) is a full tax everyone has to pay unless you are a first time home buyer. Land Transfer Tax is charged by the Land Title office when you make changes to a property's title (ex. you are putting the property title from someone else's name into your name). This is not the same as property tax and is not a part of your property tax payments.

This is often overlooked when considering the total cost of purchasing a home. All provinces have a land transfer tax, except Alberta and Saskatchewan, who instead levy a much smaller transfer fee. To see how land transfer tax is calculated, watch the video below. To help offset the cost of land transfer tax, British Columbia offers land transfer tax rebates for first-time homebuyers.

Calculating British Columbia Land Transfer Tax

The amount of tax you pay is based on the fair market value of the land and improvements (e.g. buildings) on the date of registration unless you purchase a pre-sold strata unit. The tax is charged at a rate of 1% for the first $200,000 and 2% for the portion of the fair market value that is greater than $200,000. For example, if the fair market value of a property is $250,000, the tax paid is $3,000.
PTT Calculator
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British Columbia First-Time Homebuyer Land Transfer Tax Rebate

First-time homebuyers are eligible to receive a full land transfer tax refund on homes purchased for $425,000 or less. On homes purchased between $426,000 - $450,000, the first-time homebuyer will be eligible for a partial refund equal to [ ($450K - fair market value) / 25K ] * LTT amount.

You Can Qualify For the First-Time Homebuyer Land Transfer Tax Rebate If:

  • You are Canadian citizens or permanent residents as determined by Immigration Canada