CMHC to Hike Mortgage Insurance Premiums as of March 17

The Canada Mortgage and Housing Corporation will charge borrowers a few dollars more every month to insure their mortgages, starting in March.

By law, anyone putting down less than 20% of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don’t benefit from that coverage. Rather, it’s a fee borrowers pay so if they default on loans, their lenders aren’t on the hook.

Instead, an insurance payout would cover any defaulted loans. Premiums are calculated based on the amount borrowers are getting versus the size of the down payments. Typically, CMHC fees are as little as 0.6% of each loan’s value. But on smaller down payments and larger loans, the fees can mount to 3.6%—more than six times as much as the lowest rate.

Under current rules, the CMHC charges 3.6% to insure that mortgage, or $24,567 over the life of the loan. Under new rules starting March 17, the CMHC will charge 4% of that loan’s value to insure the loan. That pushes the premium to $27,297, an increase of $2,730 or $12 a month. Different borrowers will pay different amounts depending on how much they are borrowing, and how much equity they have.

Market Update

For the fourth month in a row the Calgary market has seen inventory levels dropping. This is the result of less new inventory coming on, and sales rising, which is beginning to create more balanced markets. There has been a year over year decrease of the absorption rate in every type of market across the city. The apartment style sector remains to be one of the more challenging markets, as it has been for quite some time, and even that market has showed an increase in sales which is helping to lower the absorption rate by over 13% year over year to 8.4 months.

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Buying US Property – A Tax Guide For Canadians

If you are a Canadian resident who is intending to buy a residential property in the United States, it is important that you are aware of the following tax implications, particularly if you intend to rent it for any period of time during the year.

A non-US resident owning a US residential rental property may elect either of the following options: OPTION 1 elect to pay a tax equal to 30% of the gross rental revenue -OR- OPTION 2 elect to have rental income taxed on a net profit basis. In order to avoid the 30% gross revenue tax on your US property you must file form W8-ECI and provide a copy to the rental manager or person renting your property.

If you elect to pay tax on a net profit basis, you are required to file a US personal or corporate tax return to determine the amount of US tax owed. If you elect this option you will need to apply for a US tax identification number. The net rental profit on your US real estate is calculated as the gross rental income less ordinary and necessary expenses.

If you intend to use a US residential rental property for personal purposes in any tax year, you should be aware that this may have certain tax implications depending on the amount of time you use the rental property. These tax implications may have relatively little impact for a short vacation but residing in the US for a prolonged period can result in a non-resident being deemed by the IRS to be a US resident and taxed in the US on worldwide earnings.

Why Getting an Annual Real Estate Review is Important

Your Real Estate investment is likely the biggest single expenditure in your lifetime so why not keep a pulse on its value? Life can happen fast and keeping a relationship with your trusted Realtor
can benefit you in many ways.

1) You will learn the real time value of your highest valued asset.

2) Realtors can give you the real scoop on what is happening in your neighbourhood or for
properties like yours. Unfortunately newspapers and media often report the biggest headlines to
sell papers or get website traffic. Their reporting is broad covering the whole market in as few
words as possible. Not only is this misleading to the common home owner but if you believe
the reporting word for word, you could be limiting your own financial growth in Real Estate.

3) Perhaps it is time to move up or move down, build, or time a purchase or sale that will maximize your position. Your CIR Realtor can assist you in solving this puzzle and protecting your best interests.

4) Thinking of renovating with the thought of moving sooner than later? Why not bounce your renovation ideas off your agent that knows what improvements will maximize your selling value or save you from
over renovating your home?

Please do contact me for your complimentary review so we can ensure you have the information
you need to make informed long term decisions about your home.

Finance Minister Announces Changes to Mortgage Qualification Rules – Preferred Client Update

On October 2nd changes to Canada’s mortgage qualifying rules were announced by our Finance Minister. As of Oct 17, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages—including those where the buyer has more than 20% for a down payment.

The stress test is aimed at assuring the lender that the home buyer could still afford the mortgage if interest rates were to rise. The home buyer would need to qualify for a loan at the negotiated rate in the mortgage contract, but also at the Bank of Canada’s five-year fixed posted mortgage rate, which is an average of the posted rates of the big six banks in Canada.

This rate is usually higher than what buyers can negotiate. As of Sept 28, the posted rate was 4.64%. Other aspects of the stress test require that the home buyer will be spending no more than 39% of income on home-carrying costs like mortgage payments, heat and taxes. Another measure called total debt service includes all other debt payments and the TDS ratio must not exceed 44%.

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