Mortgage Relief: Federal Budget 2023
Last week, Chrystia Freeland presented in the House of Commons to announce the Federal Government’s 2023 Budget. It was quite extensive and has a lot of moving pieces that will affect different walks of life across the country in different ways.
We looked at how it will shape the real estate and mortgage industry and found that there are some proposed lending-related policies that have been brought forward in this budget. It is important to understand that these are proposals and could change, but it is essential to understand what may be coming in the months to come.
Here are the proposed lending-related policies brought forward by the Liberal Government last week:
Mortgage Relief: Usury Adjustment
The government intends to lower the criminal rate of interest from 47% (annual percentage rate) to 35%. Are you wondering exactly what qualifies as “interest?” Well, interest is defined broadly under the Code and includes all charges and expenses in any form, including fees, fines, penalties, and commissions.
Mortgage Relief: Distressed Mortgagor Relief
The Financial Consumer Agency of Canada will publish a guideline to “ensure that federally regulated financial institutions provide” mortgage borrowers with relief if they hit hard times, including extending amortizations, adjusting payment schedules, or authorizing lump-sum payments.
The government says that this guideline will “ensure that Canadians are treated fairly and have equitable access to relief, without facing unnecessary penalties, internal bank fees, or interest charges…”
You are likely wondering if this is already in place today. True is that yes in practice, most mainstream lenders and all default insurers already offer such borrow “workout” programs. This measure by the government would formalize and publicize it but could lead to potentially higher non-payment rates (as more Canadians take advantage of perceived lender leniency).
Mortgage Relief: Lower Canadian Mortgage Bond (CMB) Costs
In part of the Budget that discusses proposed lending-related policies, The Government of Canada “intends to undertake market consultations” by the fall on consolidating Canada Mortgage Bond issuance within the government’s regular bond issuance program. The goal is to “reduce” the cost of CMBs, which cost more to issue (carry higher yields) despite having the same credit rating as regular government bonds. The Department of Finance says it would “reinvest savings into important affordable housing programs.”
Mortgage Relief: First-Time Home Buyer Savings Account
The First-Time Home Buyer Savings Account was a proposal at last years Federal Budget and is now implemented.
As we discussed in our most recent blog, the Tax-Free First Home Savings Account will be introduced in April of 2023. Luckily, April 1st just passed, and the Tax-Free First Home Savings Account can now be taken advantage of. You can make contributions of up to $8,000 a year (to a maximum of $40,000). All contributions are tax-deductible and any withdrawals to purchase a first home will be non-taxable (which can include closing costs).
It sounds like most major Canadian Banks will have the option for a Tax-Free First Home Savings Account, and we recommend making use of it as soon as you can.
The Federal Budget launched just last week has some interesting proposed lending-related policies on top of the much anticipated Tax-Free First Home Savings Account.
It is also important to note that the government has additionally said that the default insurance property value limit will raise to $1.25mil.
You may have some questions about how some of these proposed lending-related policies could affect you in the future. Please give us an email or call and we would be more than happy to help answer all your questions and have you on your way to your first real estate purchase (or 2nd, 3rd, 4th, etc.).