Government Announces Provincial LTT Changes
The provincial government has announced significant changes to the Provincial Land Transfer Tax (PLTT), including a doubling of the rebate available to first-time home buyers, bringing it in line with the City of Toronto's rebate, and an increase in the PLTT paid on the portion of the price of properties over $2,000,000 to help pay for the increase in the first-time buyer rebate. The provincial government is proposing to double the maximum rebate for first-time home buyers from $2,000 to $4,000. This change would bring the PLTT rebate in line with the City of Toronto LTT rebate. The real estate industry welcomes this change, which will help to make housing more affordable in the GTA.
The provincial government is proposing to increase the PLTT for homes priced over $2,000,000 by charging 2.5% on the portion of the value above $2,000,000 (currently this portion is charged 2%).
For non-residential properties, the provincial government is proposing to increase the PLTT on the portion of the value above $400,000 to 2% (currently this portion is charged 1.5%).
As a transitional measure, purchasers who entered into agreements of purchase and sale on or before November 14, 2016 would not be subject to the increased rates of tax.
TREB welcomes the increase to the provincial first-time buyer rebate to bring it in line with a similar rebate in the City of Toronto as long overdue. TREB, however, always has concerns with tax increases on property, and governments should be focused on measures to make property ownership in the GTA more affordable, not more expensive.
The provincial government is proposing to restrict eligibility of the first-time home buyer rebate to Canadian citizens and permanent residents, effective January 1, 2017. As a transitional measure, purchasers who entered into agreements of purchase and sale on or before November 14, 2016 would remain eligible for the refund, regardless of citizenship or residency status.
This is the second information update implementing new parameters for mortgage loan insurance announced by the Government of Canada on October 3 and updated on October 14, 2016.
The earlier update dealt with the application of the Mortgage Rate Stress Test applicable to high ratio loans. This information update deals with new eligibility criteria for low ratio loans where the loan-to-value ratio is 80% or less.
Eligibility Requirements where the Loan-to-Value Ratio is 80% or LessEffective November 30, 2016, transactional low ratio loans must meet seven new eligibility requirements. The additional requirements are as follows:
Loan PurposePurchase of a residential property. No Refinance.
Maximum Amortization25 years from when the loan was originally made
Maximum Purchase PriceLess than $1,000,000
Variable Rate LoansFor variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the established amortization schedule.
Credit ScoreAt least one borrower (or guarantor) must have a minimum credit score of 600.
Debt Service Guidelines (GDS/TDS)Max 39% / 44% calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate.
OccupancyIf the property is a single unit, it will be owner occupied.The eligibility requirements also apply to transactional low ratio loans received by CMHC before November 30, 2016. To determine if the new low ratio eligibility requirements apply, please refer to the table below:
Before October 17New eligibility requirements do not apply where one of the following applies:
October 17 to November 29New eligibility requirements do not apply if one of the three above criteria is met and the loan is funded before May 1, 2017.
If the loan is to be first funded on or after May 1, 2017, the new eligibility requirements apply.
November 30 onwardsThe new eligibility criteria apply.
On October 3, 2016, the Government of Canada announced new rules for government-backed mortgage loan insurance. The new rules include the application of a mortgage rate stress test to all insured mortgages, and changes to low-ratio mortgage loan insurance eligibility requirements.
Below you will find additional details on how the mortgage rate stress test applies to high ratio transactional insurance.
In addition, the Government announced changes to align mortgage insurance eligibility requirements for high and low ratio loans. CMHC will issue further information shortly regarding the measures affecting low-ratio insurance.
Application of the Mortgage Rate Stress Test for High Ratio Loans Submitted for Transactional InsuranceEffective, October 17, 2016, all high ratio insurance applications must comply with the new mortgage rate stress test requirement. The mortgage loan to the borrower(s) must be qualified for a loan using an interest rate which is the greater of the contract interest rate, or the Bank of Canada’s conventional five-year fixed posted rate. The mortgage rate stress test must be applied at the time of mortgage loan insurance application. The Gross Debt Service (GDS) and Total Debt Service (TDS) ratios submitted must reflect the mortgage rate stress test going forward.
The new mortgage rate stress test does not apply to grandfathered loans. Applications may be grandfathered if one of the three following conditions apply:
These changes do NOT apply to existing loans that were insured before October 17, 2016, provided the loan continues to be administered by an Approved Lender in accordance with CMHC’s terms and conditions of insurance
The internet is covered in high quality information aimed at helping first time home buyers understand the process of getting a house. However, there is one small problem. There are a LOT of steps involved in buying a home. Most of the articles and videos that are available deal with one, two or may be three parts of the process. While this article could not possibly contain every scenario about getting a mortgage and finding a home, it will touch on the main points that are common to nearly every home purchase. First: Get Pre-Approved Buying a home is a wonderful investment, but it should be approached with the right strategy. BEFORE finding a home, and falling madly in love with a neighborhood, people should first talk to a mortgage loan officer to get pre-approved vs pre-qualified.