2 HUGE changes to the mortgage market that may affect you
Both announced in the last 2 weeks, there are 2 BIG changes coming up in the Real Estate, and moreso, mortgage arena that will affect many people both buying and selling real estate.
CHANGE #1- Property Transfer Tax (PTT) threshold increased from $425,000-$450,000 to $475,000-$500,000
What this means for Buyers- Under the old rules, if you were to purchase a home above the $450,000 mark as a first time home buyer, you would be subject to a property transfer tax amount of 1% of the first $200,000 and 2% of the balance of your purchase price.
Ex. If you were to purchase a home at $475,000 as a first time buyer, you would pay $7,500 in PTT.
Now, under the new rules, first time home buyers can purchase up to $475,000 without paying any PTT. There is also a threshold between $475,000-$500,000 where there is a reduced amount until your purchase price goes above $500,000.
What this means to Sellers- If your home is priced under $500,000, the affordability for many buyers has just increased tremendously. This is great as it may open up an entire new category of first time buyers that were previously unable to afford your home due to the tax amounts they would incur.
These changes went into effect as of Feb 19, 2014.
CHANGE #2- CMHC is increasing their premiums for high ratio lending to Buyers
What this means for Buyers- Getting a mortgage as of May 1, 2014 is about to get more expensive. A high ratio mortgage is someone applying for a new mortgage with less than 20% as a down payment on the full price of the property. CMHC is a company that insures your mortgage for the bank, in case you default and the property goes into foreclosure. When this new change kicks in, the price of insuring a high ratio mortgage is increasing about 15%.
Ex. A first-time buyer, purchasing a $240,000 condo and putting five per cent down, will have to take on around $900 more in debt under the new rates, paid out over the course of 25 years.
This is not a huge amount yet is extra money needed to over the course of time. To squeak by this change, you must have a firm and approved purchase of a new home prior to May 1, 2014.
For more information on CMHC, check out http://www.cmhc-schl.gc.ca
What this means for Sellers- Not a huge impact, yet any small increase to a fee for buyers removes a portion of their affordability. This usually affects first time home buyers with small down payments the most.
If you have any further questions on the changes, or would like some advice on either buying or selling your home, always feel comfortable reaching out for my help.
Until next time,