Mortgage Changes Over the Past Year

All the Positive Mortgage Changes Over the Past Year

30 years amortization for First Time Home Buyers

• This is limited to First Time Home Buyers, and only on new construction. 
• There’s a possibility that this will be expanded to resale as well. CMHC and the government are looking into this.
• The timeline for this is August 1st. I called in to CMHC and August 1st is when we can start to submit applications. So, if something closes just after August first and the application was done beforehand, it won’t work.

Eitan’s Take: This measure only affects a small subset of the market. In general, though, it stokes excess demand and ultimately does little to improve affordability once prices adjust. Also, limits on the size of insured mortgages mitigate its impact in our most expensive cities. Pre-construction sales usually require a 20% downpayment, which limits the use of insured mortgages, which account for only 15% of mortgage originations (IE, only 15% of mortgages are insured, and only a very small subset of that are for new construction). 

This is a nothing-burger.

Home Buyers’ Plan (HBP) limit is now $60,000 (up from $35,000)

• Contributions are tax-deductible
• Withdrawals are non-taxable
• The Home Buyers’ Plan limit has increased from $35K to $60K.
• Buyers who withdraw funds between Jan 1, 2022 and Dec 31, 2025 will have 5 years (before 2) before they must start repaying their RRSP.
• Apparently this is supposed to be in effect already; however, nowhere online (or at the banks) is there anywhere that says it’s possible to withdraw $60K. The official HBP website still shows $35K.

Eitan’s Take: This is a great option for people who have high incomes and want to decrease their current taxable earnings and reinvest in their RRSPs over the next 17-20 years. However, only a small portion of the population ever even comes close to $35,000 so getting up to $60K only really helps a small minority. Notwithstanding…

This is NOT a nothing-burger. 

First Home Savings Account

• Contributions are tax-deductible
• Withdrawals are non-taxable.
• $40,000 – Total lifetime contribution allowed
• $8,000 – Total yearly contribution allowed
• 0% tax on the growth (tax free growth)
• Carry-forward contributions for 1 year allowed – (eg. $5K year 1, and $11K year 2)

Eitan’s Take: What a cool program. This is just like the Home Buyers Plan but a buyer does not need to pay back the funds. If you use this, in conjunction with the HBP, without taking into account interest/growth, a buyer has $100,000 of available tax-deductible funds to put into a down payment. If it was two people, $200,000.

This is NOT a nothing-burger. This is a burger with all of the fixins!

Property Transfer Tax Exemption Changes

• PTT is 1% on the first $200,000 and 2% thereafter up to $2M (higher PTT over $2M).
• Prior to the change, PTT exemption for first time home buyers up to $500,000, and a sliding scale from $500,000 to $525,000.
• New rules: There is the PTT exemption up to $500,000, However, any purchase from $500,000 to $835,000, we ignore the first $500,000 of purchase price. So it is the normal PTT minus $8,000.

For example, a first time home buyer purchases a property for $800,000. Normal PTT would have been $14,000 (1% on the first $200,000 and 2% thereafter). However, new rules would allow for a reduction in the PTT of $8,000, making total PTT equal to $6,000.

• PTT Change on Newly Built Units from $750,000 to $1,100,000. This is for all owner occupied buyers, even if they are not first time home buyers.

Eitan’s Take: it’s about time they changed the PTT numbers. I remember when I got into residential mortgages in 2011 and the exemption was for $425,000. It went up to $450,000 in 2012 and then went to $500,000 soon after. However, it stayed put this whole time, while shoebox condos were selling for more than $500,000. 

This is NOT a nothing-burger. This is an ice cream burger with Nutella!

Using rental history to build credit

• The government has stated that they are going to find a way to track rental payments to increase someone’s credit score in order for them to qualify for a mortgage. At this time, rental payments do not increase credit.

Eitan’s Take: OK, not too shabby. This is great for people to improve their credit but banks already take into account positive rental payments as a form of credit; this program would just be more formal. Long story short, lenders already do this…

This is a half nothing-burger.

Now, here’s some negative changes that came from the budget… 

• There’s too much darned spending. We’re going to be paying for this for the rest of our lives 🙁
• Flipping tax on residential real estate
• Increased capital gains tax

Here’s an excerpt from Dr. Sherry Cooper’s Analysis: Currently, 50% of capital gains profits are taxed, compared to 100% of a person’s employment income. That will remain the case for the first $250,000 of capital gains income, but it will rise to 66.6% on income above that level. So, the proposal is to reduce the tax-exempt amount to one-third for capital gains exceeding $250,000.

Oh, and there’s now no $250,000 limit for corporations at all. It’s 66.6% right away.

Higher taxes in the capital gains will reduce investment in residential real estate, technology, plant & equipment and other productivity-enhancing measures. It reduces risk tolerance (potential profit) at a time when we already have a productivity deficit relative to other industrialized economies.

The lower exemption would also apply to businesses for all capital gains, not just those over $250,000. The additional capital gains taxes are expected to rake $19.4 billion into the government’s coffers over the next five years, which is no small measure. This will reduce business capital spending, already at rock-bottom lows, rendering the Canadian productivity problem even more egregious. Higher capital gains taxes also disincentivize investment in residential rental real estate.

• There’s a $40 billion deficit in 2023-2024. Any path to a balanced budget continues to be absent.

Eitan’s Take: Oy… too much spending and an increase on capital gains is going to hurt investment. I’m not a fan.