New City of Toronto Land Transfer Tax

On October 22, 2007, Toronto City Council approved a new land transfer tax, which takes effect on February 1, 2008 at the following rates:

1. One-half of 1 percent of the value of the consideration for the conveyance, up to and including $55,000.
   
2. 1 percent of the value of the consideration which exceeds $55,000, up to and including $400,000.
   
3. 1.5 percent of the value of the consideration which exceeds $400,000, up to and including $40 million.
   
4. 1 percent of the value of the consideration which exceeds $40 million; and
   
5. notwithstanding (3.) and (4.), 2 percent of the value of the consideration for the conveyance which exceeds $400,000, if the conveyance is a conveyancy of land that contains at least one and not more than two single family residences.
   

The first bank to respond (November 19, 2007) was BMO Bank of Montreal. BMO Bank of Montreal announced they would pay the new City of Toronto land transfer tax on behalf of its customers when they arranged a mortgage by February 29, 2008. The bank will cover the new land transfer tax up to 1.5% of the mortgage amount.

Similarly, on November 22, 2007, TD Canada Trust announced that it would cover the new City of Toronto land transfer tax when a customer arranged a mortgage between November 22, 2007 and March 21, 2008. Again the coverage is up to 1.5% of the mortgage amount.

Many banks offer cash-back programs in excess of 1.5% of the mortgage amount. However, they typically require the home buyer to take a posted rate. If the new "limited-time" offers can be arranged at broker-discounted rates, then these are genuinely good offers.

Blair Anderson, Broker
Anderson Associates Mortgage Brokers
blair@anderson.ca

First-Time LTT Update

Further to the post on December 14th, we have some updated information for you. Right now, everything is still in the proposal stage. It seems that first-time buyers of resale properties that signed their agreements on December 14, 2007 or later, will qualify. Because it is at the proposal stage, and is not yet a formal law, those buyers that do qualify will have to wait to apply directly to the Ministry after closing (and after the proposal has officially been passed) to receive the refund amount. Our current information is that the proposal is not likely to become law until March 2008, since it still has to go through several readings before approval. It is still possible that the proposed change may not pass, but that seems unlikely at this stage.

We wish everyone a healthy, happy holiday season!

Great News for First-Time Purchasers!

It was recently announced that the Land Transfer Tax Refund for First-Time Buyers will be expanded to include resale homes. Formerly this refund was only available to first-time buyers of new homes. The limit of the refund will remain $2,000.00.

In order to qualify as a first-time buyer, an individual must not have owned a home anywhere in the world, or been married to someone who owned a home, while he or she owned that home.

The refund is capped at $2,000.00. In other words, if the total LTT were $3,000.00, the individual would be responsible for paying $1,000.00. The refund can also be applied in part. If two people are buying a property, and only one qualifies, the refund would be applied according to that individual's percentage ownership (ie. if purchasing 50%, 50% of the refund; 75% owner, 75% refund and so on).

More information regarding the logistics of the expanded rebate should be released this afternoon. We'll know then which agreements qualify (ie. when they had to have been signed, etc). We'll update when we know more!

Link to the anouncement: http://www.fin.gov.on.ca/english/media/2007/nr12-fes2.html

First-Time Buying

To start out with, I thought I’d share my recent experience with being a first-time home buyer. I work at a law firm that does a high volume of real estate deals, and I was talking to a lot of people my age or younger who were buying houses, or who were already purchasing their second home. I was paying rent, and had a decent amount of money saved up, so I talked with my husband and we decided that we would start looking for a house.

The first thing we did was go to the bank so that we’d know what price range we could realistically afford, based on the mortgage amount we were approved for, and our projected down payment amount. We were able to find out the range we would be approved for, but more importantly, what the approximate monthly payments would be on those amounts. Based on those numbers I prepared a budget based on what I was spending at the time, and projecting the extra costs that come with ownership-property taxes, property insurance, utilities, and the mortgage payments. I was as detailed as I could be with the budget, down to the $4.00 I put into the office lottery pool each week. It’s human nature that we’re never going to be able to save as much in real life as we should on paper, so I added in another $200.00 a month for miscellaneous items. Preparing that budget helped me realize that the bank is willing to approve me for a mortgage that my salary will cover, but that doesn’t leave me any leftover money for things like food and gas, among other things.

Armed with that information, we knew our general price range. We looked at a few places, fell in love with one, and were lucky enough to have our offer accepted. We went back to the bank and the mortgage was approved after the appraisal came back positive.


So, some tips:
1. Make sure that you know what you can get approved for, and what you can afford, before you start looking at houses. It’ll save you a lot of time, and you can avoid putting in offers on homes that you won’t get approved for.
2. Remember that a pre-approval from a lender doesn’t mean that you can borrow that amount on any home-you still need to obtain an approval for that specific property. In other words, if the bank pre-approved you for a mortgage of 300K, and you put in an offer on 10 Main Street, but the bank only appraises that property at 250K, they aren’t going to give you the money.

That was a quick overview of my experience, in future posts I’ll have some information based on common questions clients have for us, and anything new that we come across. Feel free to email with any questions or topics that you’d like addressed.

Switching Lenders at Renewal

I find it hard to believe that banks are still playing the same games I witnessed 15 years ago when I entered the mortgage industry as a mortgage broker. This month I had a client contact me about his mortgage that was coming up for renewal in less than 2 weeks. He still hadn't received anything from his bank in the mail and I advised him to get something locked in asap.

The mortgage renewal process turns out has not changed that much in 15 years despite the sharp increase in competition amongst lenders. My client did end up getting his renewal notice in the mail 4 days prior to his renewal date. Unbelievable! The late arrival of the renewal notice is no mistake since the bank was likely hoping the client overlooked his renewal date and was now left with little time to consider other options - Not true. To add insult to injury, the bank's offering was 1-10 year terms at posted rates, and no mention of the popular variable-rate mortgage. No coincidence, the banks make far less money on the variable-rate mortgage on average.

If this sounds familiar to you, or if you are coming up to your own renewal date soon, there's another option you need to know about. Most lenders have switch programs. That is, the other banks who covet your mortgage business will switch or bring you over to their side and pay out your existing lender. Under their switch programs, the costs to bring you over are picked up by the lender. Since you represent new business to the second lender, you are offered the best rates in the market - not posted rates, and all available products, including the variable-rate mortgage.

The real advantage to switching lenders however has to do with the timing. New lenders vying for your business will protect a rate for you up to 120 days in advance of your renewal date. Think about it. If you are facing a renewal date 4 months from now, and there is concern about interest rates going up, you will want to lock in a rate as soon as you can. Unfortunately, your current lender will not likely lock a rate in for you until you are 30 days from renewal.

So for a small investment of your time, talk to your mortgage broker 4 months in advance of your renewal date. Get a great rate with the protection you need, and save!

LTT in the big city

I feel sorry for my friends (and family) living up the QEW from me in the big TO. All us of 905ers know how much more expensive real estate gets the closer you get to Toronto. And now this… An executive committee to city council has proposed Toronto implement it’s very own Land Transfer Tax (LTT) in addition to the provincial LTT. When will the madness stop!

A land transfer tax is essentially a tax on real estate trades. Combined with Ontario's up-to-2.0 % LTT, the additional City of Toronto LTT of up to 2% for single family residential and 1.5% for commercial, will add up to 4.0 % for houses over $400,000, and 3% for commercial properties. Once again, Toronto will hold the dubious distinction of the highest taxed jurisdiction in North America. Ah to go TO.

Many governments earmark land transfer tax revenue for specific projects. Makes me wonder what Toronto is gearing up for.

The real estate community was quick to voice their disapproval. The Real Property Association of Canada (REALpac), which publishes an annual Canadian national property tax survey, believes the new tax is ill-advised for the following reasons:

• The Land Transfer Tax will make the City less competitive for business and increase the exodus of businesses to the 905 Area of the Greater Toronto Area.
• It will again work at cross purposes to the need for intensification, and could cause the export of jobs.
• A land transfer tax disincents capital mobility: whereas properties elsewhere will find the best economic owners over time without such high tax friction.
• Real estate transfer taxes are regressive because the tax burden is higher for low income households. The thresholds set by the Province in the Land Transfer Tax Act and mirrored by the City of Toronto for the lower tax rates are now too low - how many $55,000 houses are there in the City of Toronto? The $55,000 and $250,000 brackets were set in 1985; the $400,000 surtax bracket in 1989, and none of them have been altered since, resulting in severe bracket creep as inflation makes these numbers much easier to hit. Indeed, the top level tax bracket isn't much higher than the City of Toronto average house price.
• Real estate Land Transfer Taxes are discriminatory because they are assessed against only one type of asset - real estate - while similar taxes are rarely applied to financial assets such as stocks and bonds. Accordingly, the value of real estate in the City of Toronto is diminished, and people are incented to under invest in their property.
• The additional 2% Land Transfer Tax amounts to a confiscation of value of another 2% of the selling value of real estate for every residential sale transaction in the City of Toronto, a further disincentive to locate in the city.
• The increased closing costs on the transfer of existing residential property is likely to reduce the ability of existing and new home buyers to purchase a home or afford a home if they currently rent. A buyer of a new home or condo in the City of Toronto over $400,000 will now pay approximately 10% in Land Transfer Taxes and GST.
• A real estate Land Transfer Tax is a "pure" tax and not a "user fee" since the City of Toronto plays no part in the transfer tax regime in the Province of Ontario.

Toronto Realtors yesterday launched a website (http://www.nohomebuyingtax.com/) so the public can calculate what the new tax will cost them and to easily allow the public to let Mayor Miller and City councillors know what they think.

It’s up to you and me to make some noise. Take action!

Lower down payment rules for mortgage default insurance

The federal government announced April 20, 2007 it was lowering the minimum down payment requirement for mortgage default insurance from 25 per cent to 20 per cent. This is good news for homebuyers, and homeowners looking to refinance. The new legislation within Bill C-37 affects all mortgages or loans on residential property and requires that borrowers carry mortgage default insurance when the loan-to-value (LTV) exceeds 80 per cent. The previous 75 per cent maximum LTV had been in place for 40 years. The potential savings to borrowers is a good thing. For example, the savings on a $200,000 mortgage over 25 years, on a home valued at $250,000 is approximately $2,000. Most of the banks have been quick to respond to the new legislation which is no small feat for some of them whose systems are a tad antiquated.

We are now one step away from matching a better solution to mortgage default insurance as is practiced in the US. However, I am keeping my eyes open to the new arrival of PMI Canada. The lasted mortgage default insurance provider to arrive in Canada (April 26, 2007). Yes, we have now matched the minimum down payment requirement, but we still should have the option to pay for this insurance monthly, and be able to drop it when our equity has reached the requisite 20 per cent mark. Stay tuned...