Rule Changes from March 2011-what do they mean?
As of March 18, 2011, two significant rule changes took effect in Canada, with the third change commencing April 18, 2011:
- The maximum amortization period on insured mortgages with a down payment of less than 20% was reduced from 35 years to 30 years. For a $300,000 mortgage that made an increase of a little over $100 in monthly payments. Of course it also increased the amount of capital being paid off each month. The point in this change was to insure that consumers have sufficient equity in their homes to keep them out of trouble in bad economic times. We need to learn from the misfortune of our friends south of the border.
- Insured refinancing now requires a 15% down payment, up from 10%.
- There is now a 5% minimum down payment required. Line-of-credit used for this 5% is no longer insurable.
These changes only have had a negative impact on highly leveraged purchases resulting in large interest payments and minimal equity in the property. 0% down has never been a good policy. The changes are enforcing what is really sound financial advise, especially for 1st time buyers.
Property transfer tax (PTT)is a nasty surprise to some home buyers new to B.C. There are similar taxes charged in all provinces, however ours in B.C. is the 2nd highest in the country. It is calculated like this: 1% on the 1st $200,000 and 2% on the balance. I think the idea is that any property over $200,000 is a luxury property and thus should be subject to a higher tax rate. Hmmm. Has anyone looked at the average house price in B.C. lately? This $200,000 breakpoint is looking a bit out of date.
PTT is charged to the buyer in all transactions involving transfer of title from one owner to another. However, 1st time homebuyers are exempt. In order to qualify for the exemption you need to have never owned a property anywhere in the world at any time in your life. Each individual has the right to claim this exemption, so if one partner has owned a property before and the other has not, you can claim a percentage of the exemption based on the percentage of your ownership. For example, if you own 50% of your new property then you can claim 50% of the exemption.
PTT is based on the “fair market value” of the property – usually the sale price. If the price paid for the property is not considered fair market value, for example if it was gifted to a family member, then the value would be set at the assessment level plus improvements. The point here is that the government gets its money one way or the other.
Property Transfer Tax Exemption
As a 1st time homebuyer you are exempt from paying the Property Transfer Tax (PTT) on a property of $425,000 or less. In order to qualify you need to have never previously owned a home, anywhere in the world, any time in your life. You also need to be buying the home as your primary residence and you need to be a full-time resident of B.C. for 12 months and a Canadian citizen or permanent resident.
If you are a 1st time buyer and you are buying a house with a partner who has owned before, you can still claim your portion of the tax exemption. For example, if you are going to be 50% owner, as in joint tenancy, you may claim an exemption of 50% of the tax.
For more details go to