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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.