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FACTBOX-Details on Canada's changes to mortgage, tax rules
October 3, 2016 / 6:31 PM / a year ago

FACTBOX-Details on Canada's changes to mortgage, tax rules

OTTAWA, Oct 3 (Reuters) - The Canadian government announced
on Monday that it will close a tax loophole and introduce a
stress test to insured mortgage lending in an effort to boost
the stability of the housing sector.
    It was the latest move by the government to cool a hot
market. 
    The following are details on the new measures. 
    
    MORTGAGE RATE STRESS TEST
    Effective Oct. 17, all insured mortgages will undergo a
stress test by lenders as to the borrower's ability to make
mortgage payments at a higher interest rate. Currently, this
requirement only applies to insured mortgages with variable
interest rates or fixed rates with a term of less than five
years.
    Under the changes, new home buyers will have to qualify for
mortgage insurance at an interest rate that is equal to their
contract rate or the five-year fixed rate posted by the Bank of
Canada, whichever is greater.
    The central bank's posted rate is based on the posted rates
of the six biggest banks and is typically higher than most
buyers' contract rate.
    Homeowners that have an existing insured mortgage or are
renewing a current insured mortgage will not be affected.
    
    MORTGAGE INSURANCE
    Effective Nov. 30, mortgages insured by lenders through
portfolio insurance and other low loan-to-value ratio mortgage
insurance must meet the same loan eligibility criteria as high
loan-to-value ratio insured mortgages. 
    A low loan-to-value-ratio is generally considered a loan
that accounts for 80 percent of the property value or less.
    The new eligibility criteria will include a maximum
amortization period of 25 years, a maximum property price below
C$1 million ($762,660.16), a strengthened minimum credit score,
and limit the use of mortgage insurance to owner
occupied-properties, property purchases and mortgage renewals.
    
    CAPITAL GAINS TAX ON PRINCIPAL RESIDENCE
    The government also announced proposed changes to the tax
rules to ensure that only Canadian residents are exempt from
capital gains taxes on the sale of a principal residence. The
changes are also meant to ensure that families can claim only
one home as  their principal residence for any given year.
    The exemption generally applies for each year the home is
designated as a principal residence. Currently, an extra year is
automatically allowed in the year that a homeowner moves from
one property to another. Under the proposed changes, a home
buyer who is not a Canadian resident during the year that they
bought the home would no longer be able to claim this extra
year.
    When the home is owned by a trust, additional eligibility
criteria will have to be met for the trust to designate the
property as a primary residence. 
    The Canada Revenue Agency will also require that those
receiving a capital gains exemption include basic information
about the sale on their tax returns. Currently, there is no
reporting requirement if the property has always been designated
as a principal residence.
($1 = 1.3112 Canadian dollars)

 (Reporting by Leah Schnurr; Editing by Meredith Mazzilli)

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