As of the 1st of January 2018, all Canadian buyers borrowing from a federally regulated lender will be subject to the Office of the Superintendent of Financial Institutions (OSFI) Mortgage Stress Test, including insured borrowers (those with a down payment of 20% or more).
In finance, “stress tests” are ways of considering the worst-case scenario for any investment. When it comes to mortgages, stress tests determine the risks of each loan application. How much can the borrower afford given their current debt-to-income ratio, and would they still be able to make the monthly mortgage payments should the rates increase? How would their payments be affected in the case of a temporary job loss? These are all important factors in determining how likely a borrower is to default on their loan payments.
As of January 2018, home buyers will need to qualify not only for the rate negotiated as part of their mortgage contract, but also at their current rate + 2%, or the average bank 5 year posted rate of 5.34% (whichever is higher). By “stressing” the mortgage this way, banks will ensure that the borrower would be able to service their loan under pressure, should the interest rates climb higher than the current average.
The biggest hurdle for most people when purchasing a real estate investment is the money it takes to buy rental property. It is very expensive to buy rental property since most banks require at least a 20% down payment. Many banks start requiring 25 percent down once you have four mortgages in your name.
A recreational property is a property that is not your primary residence that caters to a certain lifestyle whether it be a cottage on the water, a cabin in the woods, a cozy ski chalet or a downtown condominium with amenities. Some recreational properties can be difficult to finance to check with a mortgage broker prior to making an offer.
If you are buying a recreational property for your own personal use, you can put down as little as 5% for a down payment. If you are buying a recreational property for the purpose renting it out, you will need a minimum 20% down payment, as it would then be considered an Investment Property.
Many home buyers have the cash in the bank for their down payment and associated fees. But, you should always be aware of the following fees outside of the down payment. These fees could include the conveyance fees (legal fees), property & fire insurance, adjusted taxes (on the property), and PTT (Property Transfer Tax) of title are in addition to the mortgage costs and paid out by your lawyer when the property transfer is complete.
When you purchase or gain an interest in property in B.C. that is registered at the Land Title Office, you’re responsible for paying property transfer tax. It is a payment made to the government for transferring property from the seller to the buyer and is a complex process that should be calculated by a professional. Since it is not imposed in every Province, you will want to take advantage of your REALTORS® expertise.
Taxable transactions include:
- Transfer of fee simple
- Right to purchase or agreement for sale
- Lease or lease modification agreements
- Life estate
- Crown Grant
- Escheat, forfeiture or quit claim
- Transfer because of corporate reorganization
You pay the tax based on the fair market value (usually the negotiated purchase price) of the property at the date of registration, unless you qualify for an exemption.
If you’re a foreign national, foreign corporation or taxable trustee, you also pay the additional property transfer tax of 20% (Foreign Buyers Tax) on residential property transfers within specified areas of B.C.
Property transfer tax should not be confused with your “annual property taxes”. Annual property taxes are paid yearly for each property you own or have a registered interest in to fund services in your area.
You are obliged to pay the tax, when you:
- acquire a registered interest in the property, or
- gain an additional registered interest in the property, or
- become the registered holder of a lease, life estate, or
- right to purchase against the property is required to pay the tax unless they qualify for an exemption. This person is referred to as the transferee or purchaser..
No, if you are buying your first property. The property has to be your principal residence and you have to live there at least one year. Full exemption is possible only when fair value of your property does not exceed $425,000 and the land does not exceed 0.5 hectares (1.24 acres).
As part of the British Columbia government’s release of the 2018 budget, the Province of BC announced an increase in the Property Transfer Tax on residential properties from 3% to 5% on the portion of the fair market value greater than $3,000,000, effective February 21, 2018.
Once the fair market value of the property has been ascertained (usually the sales price), the next step is applying the rate(s) of tax to calculate the PTT payable. As of February 21, 2018, the applicable rates are as follows:
- 1% on the first $200,000;
- 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000;
- 3% on the portion of the fair market value greater than $2,000,000; and
- if the property is residential, a further 2% (5% in total) on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).
So, in this example, your total PTT would be as follows for a house purchase of $3,700,000:
1% on $200,000 = $2,000
2% on the next $1,800,000 = $36,000
3% on the next $1,000,000 = $30,000
5% on the remainder (700,000 x .05) = $35,000
Total PTT on your house purchase of $3,700,000 = $103,000