Here is the news release from the Canadian Association of Accredited Mortgage Professionals (CAAMP):

The Federal Finance Minister announced further changes to Canada’s mortgage insurance rules. Four measures were announced:

1. Amortizations reduced to 25 years
2. Refinancing limited to 80%
3. Properties purchased at over $1 million no longer eligible for mortgage insurance
4. GDS and TDS set at 39% and 44%

5. Line of Credits – LOCs – will soon be limited to 65% of the home value or LTV (Loan to Value.)

How the changes will be applied…

So we have until July 9th to get as many applicants under contract in order to access the current mortgage insurance rules. Possession on these contracts must be completed prior to Dec. 31, 2012.

Applicants going under contract on a home purchase drawn up after July 9th will have to qualify for a mortgage under the new guidelines. We will update all pre-approvals on July 9th under the new insured mortgage guidelines.

Q1. What is required to qualify for an exception to the new parameters?

A. The new measures will apply as of July 9, 2012. Exceptions will be made to satisfy a binding purchase and sale, financing or refinancing agreement where a mortgage insurance application has been made before July 9, 2012. While the changes come into force on July 9, 2012, any mortgage insurance applications received after June 21, 2012 and before July 9, 2012 that do not conform to the measures announced today must be funded by December 31, 2012.

These guidelines have existed for some time but are now more solidified. Lenders typically require that borrowers have a credit score of greater than 680 to qualify for these elevated GDS and TDS levels. Now that we are limited to a 25 year amortization knowing exactly what the upper limits on GDS and TDS are going to be critical.

Q2. Why is the Government limiting the maximum gross debt service (GDS) and total debt service (TDS) ratios?

A. The GDS ratio is the share of the borrower’s gross household income that is needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. The TDS ratio is the share of the borrower’s gross income that is needed to pay for home-related expenses and all other debt obligations, such as credit cards and car loans.

The new measure announced today will set the maximum GDS ratio at 39 per cent and reduce the maximum TDS ratio to 44 per cent. These debt service ratios measure the share of a household’s income that is required to cover payments associated with servicing debt. Both measures are already used by lenders and mortgage insurers to assess a borrower’s ability to pay. Setting a GDS limit and reducing the TDS limit will help prevent Canadian households from getting overextended and reduce the number of households vulnerable to economic shocks or an increase in interest rates.

More Technical Nerdy Data:

CAAMP believes that Canadians understand the importance of paying down their mortgages. These changes, together with new OSFI underwriting guidelines – also to be announced today – may precipitate the housing market downturn the government so desperately wants to avoid. The changes take effect July 9, 2012.

CAAMP was pleased that it was again successful in ensuring the 5% down payment rule remains intact; however, the government may have overreached with this latest round of changes.

To review this morning’s Globe and Mail article click here
To review the government press release and backgrounders click here
To contact Minister Flaherty or your local MP click here

-Important to note that these rules apply in high-ratio insured mortgage – not conventional mortgages. We will likely see changes to conventional lending over time. Many lenders will opt to apply the same rules to all mortgages but there will be exceptions. Many lender is Canada now only offer insured mortgage regardless of the down payment so these rules are going to impact the majority of applications.

-We have seen changes every year for the last four years and in all cases existing mortgages already approved under the old rules were exempt from the rule changes. I would expect the same response this time with existing approved files not being affected by the current changes. I will let you know as soon as I have some understanding of how pre-approvals will be affected.

-In his new release this morning Jim Flaherty specifically mentions the Toronto/Vancouver condo market so rather than restricting condo development in those two cities they have opted to impact the entire country. They also mention the concern over Canadian household debt which had already consistently been dropping.

-OSFI the mortgage regulator is also expect to make mortgage related changes today. 65% maximum finance for lines of credit and amortization restrictions relative to age have been discussed as additional possibly changes. There is going to be a lot of confusion relative to news releases so check in with me if you have questions on specific client situations.

1. Item one is pretty severe. Fewer buyers will qualify to get into the market, those that do qualify took a haircut on what they can afford.

2. Reduced from 85%. Somewhat immaterial because the reduction from 90-85% limited the refinance market significantly already. Now even more Canadians will not be able to move high interest debt into extremely low interest mortgage debt.

3. We don’t see a lot of insured mortgage files in this price range. This rule appears to be focused directly on Toronto and Vancouver.

4. This one needs some clarification. These higher GDS and TDS ratios have always been around but limited to very high credit score applicants. I will try to get some clarification on the specifics of this changes. I believe that this item is just solidifying rules that have been very subjective historically.

How much do you think you’ll get back for that reno?

This is one of the better articles on renovations. We did hear of a client who showed my recipts for $88,000 of back yard landscaping. It was super awesome and he had a massive rock moved in from Golden, BC at at cost of more than $20,000.

Imagine the disappoiontment when he found out that the total maximum that can be added to a home value for “superior landscaping” was $8,000. AND the people that ended up buying the property ended up having to pay $2,000 to have that giant rock moved out of their back yard.

Some people’s gold is other people’s garbage. How true.

How much do you think you’ll get back for that reno?

Shelley White

The Globe and Mail

Ah, the sweet sounds of summer: hammering, sawing, digging, demolition. Well, they’re not sweet exactly, but certainly familiar to anyone who lives in one of Canada’s larger cities. With real estate prices in a state of flux, it seems everyone is eager to spruce up what they’ve got and hopefully be rewarded with an increase in property value. However, as we know, not all renovations are created equal. Just because you’re sinking the money into your home doesn’t mean you’ll see a return on your investment. And just about everyone has an opinion on what you should and shouldn’t be tearing out.

I came across a handy-dandy online tool offered by the Appraisal Institute of Canada, which can help you determine how much of a return you can expect to get out of your home renovation. (The AIC is a self-regulating professional association and the largest property valuation organization in Canada, with 4,800 members in Canada and around the world.)

Choose a reno, plug in your expected cost, and it will tell you how much of your investment you can expect to get back. For example, if you spend $25,000 on a kitchen reno you are likely to get 75 to 100 per cent of that investment back when you sell, or $18,800 to $25,000.

Clearly, these are general guidelines, not hard and fast rules, and how much you spend will affect how much you get back. If you blow $70,000 on a fabulous bathroom job in a house that’s only worth double that, you’re unlikely to ever see a dime of that money again. In addition, choosing a renovation should be about more than just return on investment – it is your home, after all, and any work you do should also be for your enjoyment. But if you’re mulling over one job versus another and you’re looking to sell soon, it might be prudent to go for the basement reno over the swimming pool (see below).

Some of the big winners are obvious (bathroom and kitchen renovations appear to give the biggest bang for your buck), but there were others that were more surprising to me (only 25 to 50 per cent return on landscaping? Say it ain’t so).

Here’s a look at the return on investment you can expect from 25 of the most popular home renovations, according to the Appraisal Institute of Canada:

Bathroom and kitchen renovations are the real winners, providing a return on investment of about 75 to100 per cent, followed closely by exterior or interior painting at 50 to 100 per cent.

Other safe bets include basement renovation, garage construction, window/door replacement, rec room additions and fireplace installation, which return about 50 to 75 per cent, as do exterior siding and upgrades to flooring or furnace/heating systems.

You can expect a slightly lower return on investment (25 to 75 per cent) with concrete paving and roof shingle replacement, as well as installing central air conditioning or building a deck.

The lowest return on investment comes from landscaping, asphalt paving, building a fence or interlocking brick walkways, or even installing a home theatre room, which all return about 25 to 50 per cent. The home renovations that are least likely to increase property value are skylights, whirlpool tubs and swimming pools, which return between 0 and 25 per cent.

Tax Freedom Day was June 11th!

First posted: Tuesday, June 12, 2012 06:46 PM MDT | Updated: Tuesday, June 12, 2012 07:59 PM MDT

The federal government expects a deficit of $21 billion this year. (Chris Roussakis/QMI Agency)


If you’ve ever tried to calculate all the taxes you pay in a year to all levels of government, you’ve probably given up somewhere along the way.

While most of us can easily decipher how much income tax we pay — it’s right there on our tax returns — it’s a lot more difficult to gauge how much we pay in not-so-obvious taxes.

For Canadian families to reasonably estimate their total tax bill, they’d have to add up a dizzying array of taxes, including visible ones like income taxes, sales taxes, social security taxes and property taxes, as well as hidden ones like profit taxes, gas taxes, alcohol taxes … and the list goes on.

This is no easy task.

That’s why the Fraser Institute calculates Tax Freedom Day every year.

Tax Freedom Day is an easy-to-understand measure of the total tax burden imposed on Canadian families by federal, provincial and local governments.

If Canadians were required to pay all taxes up front, they would have to give governments each and every dollar they earned prior to Tax Freedom Day.

In 2012, we estimate the average Canadian family consisting of two or more people will earn $94,258 and pay a total tax bill of $41,627, or 44.2% of income.

Tax Freedom Day fell on Monday, June 11 this year.

From then on, Canadians start working for themselves and their families, rather than the government.

While that alone is reason to celebrate, you may want to keep the champagne on ice because the good news ends there.

Tax Freedom Day arrives one day later than last year. There are two main reasons.

First, several Canadian governments have raised taxes, from increased Employment Insurance premiums at the federal level, to a higher provincial sales tax in Quebec, to increased health taxes in B.C. and a new tax on high earners in Ontario.

Second, Canada’s economy is still recovering from the recession and as incomes continue to increase, a family’s tax burden increases to a greater extent because of Canada’s progressive tax system, which imposes higher taxes as Canadians earn more money.

For instance, the top fifth of income earners face an average total tax burden amounting to 54% of income, while the bottom fifth face an average burden of 18%.

There’s more bad news.

The federal and almost all provincial governments are running deficits this year. (Ottawa expects a deficit of $21 billion, while the provinces cumulatively expect deficits amounting to $20 billion).

According to our calculations, Tax Freedom Day would come 12 days later this year (June 23) if Canadian governments covered their current spending with even greater tax increases, instead of borrowing the shortfall as debt.

It’s important to remember budget deficits incurred by Ottawa and the provinces must one day be paid for by taxes.

With the recent significant growth in government debt across the country, Tax Freedom Day could come later in the future. By kicking today’s debt down the road, governments are passing on the burden of repayment to young Canadian families.

It is ultimately up to Canadians to decide whether June 11 is an acceptable Tax Freedom Day.

On that note, happy Tax Freedom Day, although maybe “happy” isn’t the right word.

Palacios and Lammam are economists with the Fraser Institute and co-authors of Canadians Celebrate Tax Freedom Day on June 11, 2012, available at