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March 14, 2017

Gifted Down Payment and CMHC

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March 14, 2017
The Bank of Canada left their overnight rate unchanged at 0.50% as Canada’s economy continues to operate with excess capacity. Recent changes by the government to stabilize our housing market will temper residential investment and our broader economy. This will help keep inflation low and bodes well for continued low interest rates in the foreseeable future. After trending higher in the last few months, bond yields have stabilized with mortgage interest rates now hovering in the 2.24% – 2.94% range OAC.

In the USA the US Federal Reserve signaled they may raise their overnight lending rate March 15th. 77% of analysts are expecting an increase unless last minute data from non-farm payrolls and average hourly wages fall dramatically this week. This should drive the US Dollar higher and help Canada’s exports as long as trade negotiations with the Trump administration don’t cause a disruption. This uncertainty remains a risk to our economy.

As you probably know from reading my News and Rate Advisor the BC Government recently announced they are raising the Property Transfer Tax Exemption threshold for first time buyers to $500,000 from $475,000. The exemption now pro-rates to zero for property values between $500,000 and $525,000. Still a long way to get to reality here in Victoria but its a step in the right direction.

The federal government continues to make changes to slow housing growth, increase capital reserves and reduce taxpayer risk. CHMC and the other default insurers are increasing high ratio mortgage insurance premiums on March 17th as shown:
Loan-to-Value Ratio Standard Premium (Current) Standard Premium (March 17, 2017)
Up to and including 65% 0.60% 0.60%
Up to and including 75% 0.75% 1.70%
Up to and including 80% 1.25% 2.40%
Up to and including 85% 1.80% 2.80%
Up to and including 90% 2.40% 3.10%
Up to and including 95% 3.60% 4.00%
90.01% to 95% – Non-Traditional Down Payment 3.85% 4.50%

Note the significant increases at lower loan to values and the 0.65% increase from 3.85% to 4.50% for non-traditional sources of equity including the BC Homeownership 2nd Mortgage Program. Every day we speak to new buyers with family gifting at least a portion of their down payment. This move is a great orderly transfer of wealth from the more established generation to their children helping them to avoid mortgage insurance premiums and more restrictive insurer guidelines. As local Victoria Mortgage experts, we can optimize a family purchase plan using all available strategies to minimize fees and payments.

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