Non-Resident Buyers or NRST (tax) - Ontario

I have been reading about Non-Resident Speculation Tax (NRST) in Ontario, and clearly I have a few things more to figure out.  First off, it seems to be in effect now, so it is worth following up on.  I will put the link to the bulletin below in case you want to read through the plan. It seems that they have covered off making a partnership with a Canadian as a way to avoid the tax.  Even with a 50/50 deal the whole purchase price is taxed if one of the partners is a non-resident. 

There does seem to be an exception for couples, married or cohabiting, with or without kids.  There are also rules to help people aiming to become permanent residents or protected persons (as defined by the Immigration and Refugee Protection Act.)

There are also rebates if someone becomes a permanent resident of Canada sometime after the purchase, or is an international student enrolled full-time for a continuous period of at least twp years, and for foreign nationals working in Ontario.

They are putting systems in place to prevent tax avoidance, by saying all land transfers are subject to audit and they have penalties that can include fines and/or imprisonment.

All-in-all, if you support the tax they seem to have covered the bases so that Canadians cannot get paid to be on title to help the foreign buyer avoid the tax.  They even seem to be making it so that even if a Canadian and a foreign national have a baby together, making it a fairly serious relationship (married or unmarried), the foreign national must certify "they will occupy the property as their principal residence."  This sort of ties people to living here, which is really the point of a "non-resident" tax I suppose.  It is interesting, because while they can say they plan to live here, what if they do not?  How will this be audited?  How will the tax be retroactively enforced?  What if they meant it when they said they would stay, but life changes?

I still have more questions I need to find answers for, but in the meantime non-residents should start by reading the online information, then contact the Ministry of Finance, or if you have a good lawyer, and can pay the bill, give the lawyer a call, this is all pretty new, so give yourself time to understand the rules, exemptions etc. make sure you know what you can afford, with or without the tax, before you buy.

Link to Basic information and some FAQs on the Ontario government site

New Classifications for Mortgages & who gets the best rates

Some thoughts on the new rules and things to know.

Rules in 2017 that change mortgage rates & deals

While the rule still holds that if you put less than 20% down you do not need mortgage insurance (e.g. CMHC or Genworth etc. - though life and disability should be seriously considered) it does mean your mortgage will be at a higher rate than those paying the insurance.
The terms now are insured, insurable and uninsurable.

THEN

A High Ratio mortgage is the same as it has been for a long time, a down payment of less than 20%.  The borrower still has to pay the extra insurance costs, and the rates went up recently so it is a bit more than before.

Conventional Mortgage is still a mortgage where you put down 20% or more of the purchase price or renew at less than 80% of the value.  All refinancing at the best rates must be conventional.
Here is where the new terms come to play.

NOW 

Insured - This is like the old high ratio.  Client is paying the mortgage insurance equity in the home is 19.99% or less.

Insurable - This is a new term lenders use to define a mortgage that is in their portfolio and can be insured at the lender's expense for a property valued at less than $1 million.  It also has to fit the insurers rules where it qualifies at the Bank of Canada benchmark rate (a higher rate to make it far more conservative and thus lowering what some people can borrow) with a 25 year maximum amortization (some other loans can go to 30 years), and with a down payment of at least 20%.

Uninsurable -  This is the "new category," it is a mortgage that is not eligible for mortgage insurance.  Examples include, refinancing, single unit rentals (rentals of between 2 - 4 units are insurable), properties greater than $1 million.

The BEST interest rates are for the insured category, the other 2 can pay between 0.20% and 0.40% more.  The new government rules at the end of last year, meant increased costs to lenders are being passed on to the borrower.

Why have the insurance?  Lenders like it because it helps protect them against foreclosure, fraud, and possible loss of value on the property (which may seem hard to believe today, but thinking long term, it is possible.

The higher rate then is effectively a form of self-funded insurance since they cannot get it from CHMC or Genworth etc.

Consider then the costs of the higher interest rates vs. putting less than 20% down on some lower costs homes.  You should also factor in how fast the property prices are increasing, if they are, and whether you can save fast enough, and/or your incomes are increasing enough to buy that same place when you have more money.  It is a tricky balance, and each regional market may have a different answer, so call Andrea if you have any questions about what is right for you.

A nice idea - Thanks Dominion Lending - Clearly the mortgage agent you should call in this case is Andrea Meynell - :)

Why You Should Speak To Your Mortgage Broker Before You Sell Your Home

While many people will speak to a mortgage broker before buying a home, few people call a mortgage broker before selling a home. Calling could save you thousands of dollars and many sleepless nights.
Why? Brokers understand mortgages and ask the right questions. How long do you have remaining in your present mortgage? Do you know if it’s portable to a new property? Have you heard of increase and blend? A mortgage broker can help you to anticipate a penalty to break your present mortgage and see if porting or taking your mortgage to your new property is a good idea. Need more money? Blend and Increase will allow you to increase your mortgage amount and blend the old rate with the present day rate and save you thousands in penalties.
If you are at the stage in life where you have children leaving for university and you are down-sizing, perhaps a line of credit might be useful for helping to pay tuition and dorm fees.
While you may like your home it may need a new roof. Most home buyers do not want a fixer-upper and will discount your selling price to account for this. It may be easier to get the price you want and sell faster if you replace the roof, furnace or whatever is old yourself. The problem is that you are saving money for a down payment. Your mortgage broker can come to the rescue with a line of credit, either secured or unsecured which can be paid out with the home sale. In short, “we’ve got a mortgage for that!”.
Remember, calling your Dominion Lending Centres mortgage broker before buying is a no-brainer but why not call them before you sell.

12 Apr 2017. - From Dominion Lending - My new Brokerage -  I like the summary so thought I would share.

Bank of Canada Upgrades Forecast, But Keeps Rates Unchanged

For years now, the Governor Stephen Poloz and his Bank of Canada colleagues have held the key overnight rate unchanged at 1/2 percent, while at the Federal Reserve has hiked rates several times with more to come. The jobless rate is at a mere 4.5 percent in the US, clearly at or near full employment and the Fed policy makers have suggested they will reduce liquidity further this year and next. Once again today, the Bank of Canada has held the key overnight rate steady while upgrading their outlook for the economy.
Economists now expect the Canadian economy to grow at a rate of roughly 2.5 percent, compared to 1.4 percent last year and a mere 0.9 percent the year before. Indeed, economic activity has accelerated sharply since the middle of last year–up at a 4.3 percent annual pace over that seven-month period. Job creation has been strong since the summer. The Business Outlook Survey suggests that business investment–a disappointing underperformer–is poised to rise as the oil sector digs itself out of the rut caused by the collapse in oil prices in mid-2014. Export growth accelerated sharply until February, which hopefully is a one-month aberration and housing activity certainly remains strong–too strong in the Greater Toronto Area and its environs, as well as in parts of British Columbia.
No one expects the Bank of Canada to raise rates simply because of the housing market, as housing markets are not overheated in much of the rest of the country.
In today’s Monetary Policy Report (MPR), the Bank boosted their forecast of Canada’s economy this year to 2.6 percent from 2.1 percent in the January MPR. For 2018, growth is now projected to be 1.9 percent (slightly below the January forecast). However, the Bank suggested that the “composition of aggregate demand is uneven.” According to today’s MPR, “In the oil and gas sector, a resumption of growth in investment spending is under way in the wake of significant adjustments to past declines in commodity prices. This contributed, together with very strong consumption and residential investment, to a temporary surge in growth in the first quarter. In contrast, non-commodity business investment and exports remain weak, raising questions about the medium-term sustainability of the upturn”.
“Economic activity will be supported by rising foreign demand, federal fiscal stimulus and accommodative monetary and financial conditions. In addition, the composition of demand growth is expected to broaden: the pace of household expenditures, especially residential investment, moderates as the contributions from exports and business investment increase, albeit at a much slower pace than would normally be expected at this stage of the cycle. Ongoing competitiveness challenges and uncertainty surrounding the prospects for global trade are expected to limit this broadening of growth. A notable increase in global protectionism remains the most important source of uncertainty facing the Canadian economy”.
The Bank’s forecast remains a bit below the consensus view of Bay Street economists. The Bank has underestimated growth for many quarters. The MPR suggests that “while the degree of excess capacity has declined since the January Report, the Bank judges that in the first quarter of 2017 it remains material, between 1 1/4 and 1/4 per cent”. The output gap is now projected to close in the first half of 2018, a bit sooner than the Bank anticipated in January.

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Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres
Sherry is an award-winning authority on finance and economics with over 30 years of bringing economic insights and clarity to Canadians.
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Happy New Year - Economic Outlook

I want to start off by letting you know I am very excited about changing to Dominion Lending Centres Expert Financial brokerage.  I was getting very frustrated with Northwood and the support was just not there.  In the few days since I have switched over I already have access to more tools and better information than ever before.  I can also offer some great new products, but more on that later.

On the economic and regulatory front... Well what can I say it has been a crazy few months.  The new rules are kicking in for mortgages making it harder to qualify for the larger amounts of old.  The government's stated goal is to keep us from burying ourselves in debt paying for the houses, and by implication freeing up money for us to spend on other stuff so we can keep the economy going.  If we have big mortgages and no spare money there is not much left for toys, extras, renovations and nights out.  There is a plan, it just may not have been yours.

The flip side of this is that Canada is now on the radar and housing prices are cheap by "world class" city standards. Sometimes we have to be careful what we wish for.  So now foreign buyers are part of the game and when the dollar weakens they have more available cash to buy properties because many hold USD. 

I will write more about the new rules in the next issue, in the meantime here is a link it an article.  CBC Business

What we know may affect 2017 from 2016 - Brexit, the refugee crisis in Europe, Trump, and oil prices, among others. 

Where we are now.

Job number for December look great, this means more people working in full-time jobs and as "the slack" is absorbed there will be less pressure to keep rates low. Also, November saw a trade surplus for Canada, this is good because it means more money in than out,  suggesting a strengthening across many industries. 

The US the economy is still stronger than here, and the Fed may keep raising rates, if we do not raise rates, or things do not get stronger it may lead to a drop in the Canadian dollar.  If Trump does what he says he will, then there will be a whole lot of stimulus in the US, this is why the bond markets have started to push mortgage rates higher, as people sell off the bonds in anticipation of the higher US deficits.

We can expect to keep seeing higher mortgage rates, and while these rates are still historically extremely low the 20 somethings have been used to something even better, in fact we have all developed a fondness for these low rates, but some remember the 16%+ days and some just the 6% days, so rates below 3% is still a pretty good deal.  I just though a little perspective was in order when I talk about rate increase, instead of 2.39% we are going to 2.69 - 2.89%. 

I look forward to seeing what happens with NAFTA and the world in general, I am both amused and concerned at the puppet strings being pulled by Putin in the US, and seeing the vaunted US democratic ideals being played like a concert piano by a Cold War KGB veteran, and the allies Trump (whether he realizes it, or not) is putting in place to destabilize the global dynamic and not just the national one.  How that will play out on global trade and economics will be a brand new area of study with very little precedent.   In the meantime, I am hoping only normal events and trade matters affect what lies ahead. 

Economic News & Possible Rate Changes - Next Year

In my last post I wrote about Brexit, and over the summer I went to the UK.  On my trip I met and spoke with a range of people, some horrified by the outcome and hoping the government will come back to voters with the results of what Brexit negotiations really will mean for the UK and seek another vote, others who made gobs of money after the results, and still others firmly happy with the results and looking forward to independence.  I hear some farmers though are a little uncertain the UK government will keep up the same subsidies they have been enjoying under the EU.  Nothing is negotiated yet, and the rest of Europe is fuming, quietly at this stage; I suspect they are still hoping for a new vote.

I also heard some speculation that one of the reasons the pro-Brexit leaders dropped off the radar so quickly after the vote was because they were, in part, funded by Russia as part of Putin's effort to weaken Europe.  Whether true, or not, it certainly will help Russia if the UK does fully withdraw in a few years time, as would a Trump win in November.  Like China, Russia is playing a long game.

I think the end result is that economies in many countries will be slow in general with bursts of up, flat periods, and maybe a little down, for some years to come, but I do not foresee sustained upside for some time.

The recent Bank of Canada announcement held rates steady at 0.5%, and I am sure I heard a news report that they are not expecting rate increases until well into next year.  While the 20-40 year old age group is having to deal with ever increasing housing prices in major markets, they will certainly have enjoyed almost a decade of historically low borrowing costs, never knowing the 10.02 - 19.41% average mortgage rates of the period between 1973 - 1992.  Yes, I did say 19.41%, it was the average 5 year fixed rate in March 1982 according the the Bank of Canada.  So each generation has had its challenges.

So, while the rates on offer to consumers may go up and down a bit as lenders compete for business, and balance that against boosting profits, people can still expect to get cheap money for the foreseeable future. Enjoy, and unless you are making big bets and investing in something you feel good about, take this time to pay off debts as soon as you can, it will make your future more relaxed, and if rates do go up it will not hurt as much.

BREXIT - Now the wheels are in motion - What might it mean for mortgage rates?

The news before Brexit had been that rates were expected to rise, but as I, and many others have said, that always assumes nothing new happens to change the plan.  Brexit changes the plan.  Not only has the UK currency dropped off a cliff, global markets went on a crazy downward spiral, but what does it mean for mortgage rates?

If they were going to raise rates the economies of the world and particularly North America would have to be steady, solid and are on an upswing, and while Europe is not Canada's largest trading partner you cannot slam that many "rich" countries and not have some kind of global falling of the dominoes.  As angry as the Europeans are at Britain, and as shocked as Cameron might be that his silly gamble to resolve internal party disagreements has now led to a global crisis, the world needs and wants some stability, so "the powers that be" will work at making the ride as smooth as they can while still slapping Britain on the wrist.  The odds are also strong that Scotland will now separate from England and Northern Ireland may join the south, ending many, many years of another type of disagreement. (It helps that the rule of the RC church is also losing some grip on the laws of the Republic of Ireland making it easier for the Protestants to consider joining.) 

So economic turmoil tends not to lead to stronger economic growth, which in turn lowers the pressure of the bond markets, and the Bank of Canada to raise rates. 

The bottom line is that anything that is bad for the global economy is going to keep rates low, which is great for borrowers, but tough for the unemployed and also making it tough for governments to raise revenue without increasing tax rates to meet much needed infrastructure and other spending needs.

On the housing side the government therefore will be turning to other tools to tackle the insanity of the Toronto and Vancouver housing markets, so I will be keeping an eye out for more changes to the mortgage rules in coming months.