Since 2008, the federal government has made several changes to the rules for mortgages insured through the Canada Mortgage and Housing Corporation (CMHC) and other private sector mortgage insurance providers. Thesee rules affect home buyers with less than a 20 percent down payment, which include many first-time home buyers in Canada.
The changes include the following:
• The maximum amortization period has been reduced to 25 years from 40 years.
• Home buyers must have a down payment of at least five per cent of the home purchase price and starting February 15, 2016, home buyers must add a further 10 per cent to their down payment for the portion of the house price between $500,000 and $999,999. For non-owner occupied properties, a minimum down payment of at least 20 per cent is mandatory.
• Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.
• Limiting the maximum gross debt service (GDS) ratio to 39 per cent and the maximum total debt service (TDS) ratio to 44 per cent.
These two important ratios are used when calculating a person's ability to pay down debt. GDS is the share of a borrower’s gross household income needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. TDS is the share of a borrower’s gross income needed to pay for all debts, including those relating to home ownership.
• Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. Borrowers buying homes at or above this amount will need a down payment of at least 20 per cent if their financing is from a federally-regulated financial institution.
The banks' prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI) has introduced two new guidelines for banks and other federally regulated lenders as well as for federally regulated mortgage insurers.
OSFI's B-20 Guideline on Residential Mortgage Underwriting Policies and Procedures, which came into effect in June 2012, outlines key principles for prudent mortgage underwriting that banks are required to follow. It also places limits on home equity lines of credit (HELOC). A homeowner can borrow no more than 65 per cent of the value of their property through a non-amortizing HELOC. Any additional mortgage credit beyond the 65 per cent of the property value on HELOCs should be amortized.
OSFI's B-21 Guideline on Residential Mortgage Insurance Underwriting Policies and Procedures, which came into effect in June 2015, focusses on the mortgage insurer's interaction with lenders as part of the insurance underwriting process and includes on-going due diligence into a lender's operations and its risk management processes.
Liberal election platform expressed concern over 'escalating home prices in high-priced markets'
The federal government is boosting the minimum down payment for higher-priced homes in Canada effective in the new year.
Homebuyers are currently required to put down a minimum of five per cent to qualify for Canada Mortgage and Housing Corporation insurance - protection that lenders insist on when providing a mortgage worth more than 80 per cent of the home's value.
Starting in February, CMHC will require a 10 per cent down payment on the portion of any mortgage it insures over $500,000. The five per cent rule remains the same for the portion up to $500,000.
"We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated," Finance Minister Bill Morneau told reporters on Friday, "and we want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home."
Finance Minister Bill Morneau announces changes to mortgages over $500,000
Once the new rules are implemented in 2016, someone looking to buy a $750,000 home would need to have a minimum down payment of $50,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $250,000.
Banks are forbidden to provide "high-ratio" mortgages — when the amount being borrowed is more than 80 per cent of the home's purchase price — without taking out insurance for it.
What Makes More Sense, Financing, Leasing or Paying Cash for a Vehicle?
May 24, 2010
In recent years automotive manufacturers have made it easier and easier to buy a new vehicle. Offering no interest and low interest leases and financing with no money down , IF you buy a new vehicle. Some will even offer new vehicle financing as long as 84 months (7 years) all to make the payment, one that you can afford to pay monthly, so that you buy.
Taking advantage of these offers can make excellent financial sense if you have thought through your personal financial situation and reviewed both your short and long term financial goals.
It is common knowledge that as soon as you drive a new vehicle off of the lot it depreciates in value by 30%-35%. So paying cash for a new vehicle is never a wise investment because of the immediate depreciation of the asset. You are better off to buy an almost new, used vehicle. Dealers often have demo vehicles or one year lease returns that have very low kilometers and are almost brand new at fraction of the cost of a new vehicle.
The same is true with financing a new vehicle. As soon as you drive a new vehicle off of the lot it depreciates in value by 30%-35. So if you finance, as soon as you drive off the lot you will owe over 30%-35% more than what your new vehicle is worth. They don’t make vehicles like they used to and automotive trends indicate that more people trade in and up in vehicle every 4-5 years.
Financing a vehicle is a real commitment. Before arriving at the dealership it is prudent to research what kind of vehicle you want to purchase. Don’t just look at the sale price of the vehicle. Estimate what it would cost to drive the vehicle off of the lot. Take the vehicle price, add $500 for any extras you may purchase (like extended warranties), add $200 for an admin charge, add freight of $1,000 (if you are buying a new vehicle), then multiply the total by 13% (tax) and add that to the total.
Many bank and car loan companies have free online loan and mortgage calculators. Input the total amount that you want to finance, select a (60month) 5 year term and amortization and interest rate of 8%. Look at what your payment would be. If the payment is too high you have two options. 1. You could consider a more affordable vehicle 2. Use the financial calculator to determine how much of a down payment you will need to reduce the vehicle payment to one you can afford. An 84 month loan term is unadvisable.
We recommend that prior to considering financing or leasing a vehicle that you obtain your Financial Report Card from True Assess to find out how lenders grade the state of your entire financial profile. This will give you more leverage when negotiating the financing of a big ticket purchase, such as a vehicle.
Also many new car dealerships have used lots. In Toronto, West Toronto Kia offers all kind of great deals on new and used vehicles. We always recommend that that you purchase a used vehicle from a dealer vs. private person. In the unfortunate instance that you have a problem with the vehicle you can return to the dealer for assistance.
Leases can be dangerous. It’s funny because I say that and I drive a leased vehicle! Most leasing companies offer leases that set the maximum kms at 20,000kms – 24,000kms per year. If you drive more kms than what is permitted in your lease many leasing companies will charge 10cents – 15cents for each kilometer you drive over the permitted allowance. Be realistic, if you will be driving more than 20,000kms – 24,000kms per/year a lease may not make sense because you could owe thousands in mileage at the end of your lease.
Now if you are self employed or are paid by your employer for your mileage a lease can make excellent financial sense. A leased vehicle if used for business can be written off your tax return either partially or entirely (depending on how much of the time it was used for business). You can also change your vehicle for a brand new one every 4 years.
At the end of your lease, you need to make a decision to pay out the remainder owing on the lease or return the vehicle. Either way, maintaining good credit will be key to ensure you have options at the end of your lease.
Buying a new vehicle can be exciting. Once you enter a dealership the sales people will feed off of this excitement. You must plan and make level headed decisions. The purchase of a vehicle is a major financial decision and should not be taken lightly.