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TriDelta Investment Counsel Q4 Report – In 2017 while the noise gets louder, facts matter more than ever.

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10 Facts for 2017 and what it means to you

2017

  • For a 65 year old couple, there is a 90% chance at least one will live to age 80.
  • For a 65 year old couple, there is a 48% chance at least one will live to age 90.
  • Since 1926, average returns for the S&P500 have been 9.8%. 4% came from dividends and 5.8% from capital appreciation.  41% of total return came from dividends.
  • In 2006, the top Corporate tax rate in Canada was 34%. In 2016 it was 27%.
  • In 2006, the top Corporate tax rate in the U.S. was 39%. In 2016 it is still 39%.
  • The U.S. unemployment rate is now 4.7%. The last two times the unemployment rate was that low, the 10 year bond yield was at 4.14% and 5.24% respectively.   Today it is at 2.37%.
  • In the past 14 years, when comparing returns to volatility, High Yield bonds have been among the best asset classes averaging a return of 9.2% while maintaining a relatively low level of volatility compared to all major asset classes. Commodities have had a 1.2% annual return with a much higher level of volatility.
  • In 1990 the 5 year GIC rate was 11%. Today at the Big banks, 5 year GIC rates are only 1.5%.  In order to generate $50,000 in annual income using 5 year GICs, you would have needed $454,000 of savings in 1990.  Today you would need $3.33 million.
  • There is $12.3 trillion sitting in cash and money markets in the U.S. today vs. being efficiently invested.
  • The asset mix of the Ontario Teachers’ Pension Plan at December 31, 2015
    1. 2% Canadian Stocks
    2. 44% Non-Canadian Stocks
    3. 41% Bonds
    4. 6% Natural Resources
    5. 14% Real Estate
    6. 10% Infrastructure
    7. 11% Absolute Return Strategies
    8. -28% Money Market (or borrowing to invest)

What the facts above mean to us is that while short term interest rates are heading higher in the United States, we live in a time of increased longevity and very low risk free returns on investments like GICs.  In order to achieve positive investment returns after inflation and taxes, that will carry through a long life, you need to look at stocks that pay dividends and you should have meaningful exposure outside of Canada and Commodities.  You also want to have exposure to high income investments that reduce volatility and do not act so much like stocks, such as high yield debt and alternative income strategies.  While stock markets today are trading at historically higher valuations in the U.S. and Canada, clients should still be invested because earnings are expected to rise, there is the positive potential impact of meaningful corporate tax cuts in the U.S., and the massive amounts of money that remain invested in cash and money markets that need a higher return.  If you think that the people that manage the Ontario Teachers’ Pension Plan are pretty smart (they are), then why are they borrowing $47 billion to invest?  The answer is that they believe so strongly that cash is a bad investment today and that with cash being so cheap to borrow, why not borrow to invest?

These facts don’t change under President Trump.  What does change is that in a world of unfiltered tweets that reach around the world in a second, we will have some days or weeks or months in 2017 that may shake investors’ faith in these 10 facts.  Despite the noise, facts still count in life, in financial plans and in investing.

How Did TriDelta Do in Q4?

While we certainly saw gains across our stock portfolios, we did not get the full benefit of the surprising Trump election win, and the surprising Trump rally.  We always find it surprising how many people state that they expected both to happen….. after the fact.  It is worth noting that for the small percentage that thought Trump would win, there were even fewer that thought the stock market would rally on the news.

On the stock side, most clients were up between 1.25% and 2.25% on the quarter.

On the bond side, TriDelta’s active management really shone brightly.  While broad bond indexes had a terrible quarter, down over 3%, the TriDelta Fixed Income Fund was down just 0.6%.  Our Fund was up nearly 6% over the course of the year.  Among the reasons for this outperformance was a focus on Corporate Bonds, Preferred Shares as well as some higher exposure to High Yield Corporates.

Preferred Shares continued their strong rebound, especially on the rate reset side of things.  TriDelta’s preferred holdings were up over 6% on the quarter and over 14% on the year – handily beating Preferred share indexes over both time frames.

The TriDelta High Income Balanced Fund ended off a great year, with a decent fourth quarter gain of 1.25%.  For the year, the fund was up 15.6%.  It has had 11 consecutive positive months.

Our Investment View for 2017

The million dollar question is whether Trump will accomplish most of what he says.  If that is the case, there will be lower corporate tax rates, higher inflation, higher interest rates, greater infrastructure spending, more protectionist trade policies and less regulation on the Energy, Financial Services and Health Care industries.  The market has already assumed that much of this will take place, and has acted accordingly.  If some of these don’t take place or take place much more slowly or in a watered down way, the market will adjust back a little bit in the affected sectors.

We believe the following:

  • While there will likely be higher inflation and interest rates in the United States, this will not likely be the case for Canada. Canada is in a different place economically than the U.S. and along with the possibility of a tougher export environment to the U.S., Canadian increases on inflation and interest rates will likely be muted to non-existent.
  • While there will likely be higher inflation and interest rates in the United States, it will not be as high on either front as some are predicting, at least not in 2017. Among the constraints on increased Government spending will be the debt ceiling (remember that issue from yester year?) to pay for greater infrastructure.  This will not be easy to push through a Republican House, and will likely slow the growth and inflation some currently predict.
  • Large cap dividend payers will remain a popular investment. In the weeks since the Trump election, there was a pullback in some of the traditional large cap dividend paying utilities, health care, consumer staples, and telecoms.  We believe that there remains a great deal of interest in these stocks for two reasons.  The first is that all of those bailing out of bonds need to go somewhere.  If you were 60% invested in bonds and now you are 40% in bonds, what type of stocks might you buy?  It is most likely for a bond alternative, you would buy the highest quality stocks that pay a decent dividend yield.  The second reason is that as per point number two, we believe that some of the U.S. growth story is overdone, especially in terms of expected infrastructure spending.  If that is the case, the shift to higher risk stocks that we saw this past quarter may shift back.    
  • Oil will struggle to top $60 for a long time. This is tied somewhat to lowering regulatory hurdles on various ‘dirty’ energy sources, and also tied to the opportunities for increased supply at $60 Oil.  There are more and more U.S Shale energy sources that are ramping up again as the Oil price increases.  In addition, supply will likely increase in Canada and other oil exporting nations outside of OPEC.  Lastly, OPEC members have not proven themselves the most disciplined bunch in the past decade.  It is unlikely that they will be able to hold back on supply if they can get decent prices.  As new supply hits, it will significantly constrain meaningful growth in prices.  This will also limit the opportunities for the Canadian market to do nearly as well as in 2016.
For 2017 we believe:

US Dollar will be stronger than the Canadian Dollar – U.S. interest rate hikes while Canada remains steady.  Some possible trade issues for Canada.  Lower commodity price growth than 2016.  All of these point to Canadian dollar weakness.

Canada will not be a top performing equity market in 2017 – In 2016, the TSX was up 18% after declining 11% in 2015.  In Canadian dollars, the S&P500 was up 6%.  Most of Europe and Asia were negative.  We believe that for Canadians, there will be better Canadian dollar returns found in Europe and Asia and the U.S. than in the TSX.

Preferred Shares will continue to provide good returns.  Preferred shares should continue their ascent, following a strong year as the fear of lower rate resets recede.  There remains the allure of tax preferential preferred yields and the prospect for potential capital gains in an asset class that has been deeply disadvantaged in 2014 and 2015. 2017 looks to be shaping up for another friendly year for this asset class as investors continue to search for 5%+ yield in an environment where interest rates may have found a bottom.

Canadian interest rates and inflation will remain quite low – The catalysts for growth don’t seem to be there at this time.  Despite lots of U.S. news media talk on rising rates and inflation, we need to remain focused on the Canadian experience.

China’s tightening rules on the foreign flow of money will lower housing prices in Vancouver and likely Toronto – I know this one is a tough prediction for Toronto considering it hasn’t had an annual decline in 20 years.  The point is that foreign funds from China are a significant driver on the real estate market in Vancouver and Toronto.  Toronto has had a bigger push of late because we do not have a Foreign Buyers Tax (yet).  The view is that this will have a bigger impact overall than some people predict.  There is also the continuing impact of tighter mortgage rules and slightly higher mortgage rates.  If we do see lower prices (they won’t likely be large declines), it will be another small weakness on the Canadian economy overall.

Alternative Income Investments remain a strong investment option for a part of your portfolio.

Given the low yields offered on most bonds, we have focused considerable time and energy reviewing and incorporating alternative assets, particularly in private investments, into client portfolios.  These investments offer favourable economics, along with high levels of income that are typically in the 6-10% range.  These investments have very low volatility and provide additional diversification benefits as they have low correlation with stocks and bonds.  These benefits will continue to be valuable in 2017 and for the foreseeable future.

Summary

The year ahead has more uncertainty than most.  As a result, we will continue to try to reduce overall volatility of portfolios and to reduce the downside risks that can come up in any market cycle.  Steady income – whether from solid dividend growers, preferred shares or alternative income investments – will be a good friend in 2017.  It is an even better friend if the yields achieved are meaningfully higher than inflation rates – and are not very connected to the ups and downs of the market.

As a final comment, we wanted to thank our clients for their trust and confidence in us.  We appreciate it greatly, and will work hard to earn that trust and confidence in the year ahead.

All the best to all our readers for a healthy and prosperous year ahead.

TriDelta Investment Management Committee

 

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Exec VP and Portfolio Manager

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

FINANCIAL FACELIFT: At start of big earning years, couple face lack of retirement savings

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Below you will find a real life case study of a couple who are looking for financial advice on when they can retire and how best to arrange their financial affairs. The names and details of their personal lives have been changed to protect their identities. The Globe and Mail often seeks the advice of our VP, Wealth Advisor, Matthew Ardrey, to review and analyze the situation and then provide his solutions to the participants.

gam-masthead
Written by: DIANNE MALEY
Special to The Globe and Mail
Published Friday, Dec.30, 2016

retirement_planningAfter nearly a decade in grad school toiling as a research assistant, Chris has reached his big earning years. He is 39 and grosses about $180,000 annually as a self-employed medical consultant.

“I began my private practice one year ago,” Chris writes in an e-mail. It has taken off and is generating a lot of money, he adds – so much that his wife, Rachel, stepped away from her job “and is now trying to forge a career as an author,” Chris writes. Rachel, who is 40, is also taking care of their three children, whose ages range from 10 to 13.

In the fall, after a generous gift from their parents, they bought a house large enough to accommodate a family of five and a writer. Over the next few months, they want to buy a new car, renovate their bathroom and put in a gas fireplace. They have not yet begun to save for retirement in any meaningful way and are concerned about that. They’d also like to travel.

“How much should we allocate to our RRSPs and tax-free savings accounts to make up for the years when we didn’t contribute?” Chris asks. “How aggressively should we pay down our mortgage, and how do we balance this against our dream of purchasing a cottage within the next 10 years?”

We asked Matthew Ardrey, vice-president at TriDelta Financial in Toronto, to look at Chris and Rachel’s situation. Mr. Ardrey holds the certified financial planner (CFP) designation.

What the expert says

Chris and Rachel want to renovate their bathroom and put in a gas fireplace at a combined cost of $35,000. Mr. Ardrey assumes they will use part of their $83,000 in savings to pay for this. As for the car, they could finance the purchase at or near zero interest and pay the loan off over five years.

Because they live in Quebec, their children’s tuition fees for postsecondary education will be much lower than in other provinces. Rachel and Chris are saving $2,500 a child a year to their registered education savings plan, which has a balance of $51,000. Mr. Ardrey assumes a cost of $10,000 for each child a year to cover additional costs such as textbooks and the like. So their savings should be enough to cover the majority of the costs of four-year undergraduate degrees for each of their children, the planner says. They will fall a little short in the final year of schooling for the youngest child and will need to add about $8,500 of their own money.

To meet the couple’s travel goal, Mr. Ardrey doubled their travel budget to $14,000 a year starting in 2018 when the home renovations are complete.

So far, Rachel and Chris have almost no retirement savings. Chris has $34,000 of unused RRSP contribution room and Rachel has $61,000. Both have the maximum TFSA contribution room available.

Given their cash holdings and surplus of income over expenses, Chris should be able to make up his unused RRSP contribution room in the coming year as well as make the maximum contribution for 2017 and ensuing years. No RRSP contributions are factored in for Rachel because she has no income at the moment.

For the TFSAs, they can catch up on past contribution room by 2021. From 2021 onward, the planner assumes they make the maximum TFSA contribution every year. Both contributions will be made from Chris’s income. Because the money is going to a TFSA, the investment income from her TFSA will not be attributed back to him.

In preparing his forecast, the planner assumes it will take five years before Rachel starts earning an income from her writing equivalent to $20,000 in today’s dollars. Because Chris will be making substantially more than Rachel, Mr. Ardrey assumes that she saves all of her gross earnings to her non-registered investment account. The resulting investment income will be taxed at her lower marginal tax rate. In addition, Chris can pay any income tax Rachel might owe to allow her to save more.

Starting in 2021, Chris and Rachel will have some additional cash flow because they will have caught up on their TFSA contributions. Mr. Ardrey assumes they direct $1,100 a month to paying down their mortgage from 2021 to when they buy the cottage. He assumes they buy a cottage in 2028 for $400,000 in today’s dollars, adjusted for inflation. The make a down payment of 10 per cent from Rachel’s non-registered savings. The remainder of the purchase price is financed by a mortgage at 5 per cent. In 2037, when the mortgage on the principal residence is fully retired, they can increase the principal repayment on the cottage mortgage by $30,000 a year to retire the debt in 2043, in advance of their retirement in 2047.

Chris and Rachel plan to retire at the age of 70. Their savings and government benefits will be more than enough to meet their $55,000 a year after-tax spending goal, Mr. Ardrey says. He has factored in $20,000 a year for travelling until Chris is age 85. The planner’s forecast assumes a 5.4-per-cent rate of return on their investments, falling to 4 per cent once they have retired, an inflation rate of 2 per cent, and that they both live to the age of 90.

+++++++++++++++++

The people: Chris, 39, Rachel, 40, and their three children.

The problem: How to allocate the income from Chris’s growing consulting business. Can they buy a cottage?

The plan: Catch up on unused RRSP and TFSA contribution room, then shift to repaying the mortgage. Once the mortgage on their principal residence is paid off, they can shift the money to the cottage mortgage and have it paid off before they retire.

The payoff: A clear road map to a financially comfortable retirement with all their goals achieved.

Monthly net income: $9,380

Assets: Cash in bank $83,000; his RRSP $1,200; her RRSP $1,200; RESP $51,000; residence $765,000. Total: $901,400

Monthly disbursements: Mortgage $1,850; property tax $140; home insurance $140; utilities $175; transportation $335; grocery store $1,150; clothing $100; gifts $50; vacation, travel $585; dining, drinks, entertainment $260; grooming $60; pets $50; subscriptions $135; doctors, dentists $50; life insurance $75; disability insurance $20; cellphones $90; Internet $150. Total: $5,415. Surplus available for saving and investing: $3,965

Liabilities: Mortgage $417,000

Want a free financial facelift? E-mail finfacelift@gmail.com.

Some details may be changed to protect the privacy of the persons profiled.

Matthew Ardrey
Presented By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

Lorne Zeiler, Guest Portfolio Manager on BNN’s Market Call December 23, 2016

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lorne_bnn_23dec16Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Investment Counsel, appeared on BNN to take viewer’s calls on Dividend Stocks, Portfolio Strategy and investment impacts of a Donald Trump presidency during Market Call on December 23, 2016.

What is a Locked-in Retirement Account (LIRA)?

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pension

LIRAs are registered accounts that are funded with assets from a pension plan. These types of accounts are very similar to the RRSP but with some significant restrictions.

Recently I was quoted in an article written by Jon Chevreau for the National Post. about LIRAs. As I am finding that more and more of my clients are holding LIRAs, I thought this would be a good opportunity to explain what they are and how they work.

Before I get into the details of the account itself, I think it would be useful to gain some understanding of why these accounts are becoming so prevalent in today’s workforce. The world of pensions and employees has changed significantly in the past 10 years or so. It used to be that there were many more employers in the private sector that offered their employees defined benefit (DB) pension plans. These days, to find a private sector employer with a DB pension plan is increasingly rare. If a company does offer a pension today, it is more likely to be a defined contribution (DC) pension plan.

In addition to there being less DB pension plans, employees are less likely to remain at their current employer their entire careers than they were in the past. If these employees leave and have a pension, the balance of the DC pension plan or as an option, the commuted value of the DB pension plan, will be transferred out to a LIRA.

Finally, those who did decide to commute (or take the cash value) of their DB pension mention reasons for their decision like wanting control over the investment strategy and having more flexibility over the withdrawals in retirement versus the traditional pension payout. This is due to changing attitudes about investing and personal finance.

What is a LIRA and how does it work?

As I mentioned above it works almost exactly like an RRSP but with additional restrictions. The first of these is you cannot access the funds in the account except under very specific circumstances I will discuss below. As these funds are from a pension plan, the government wants to ensure that they are used for retirement. Contributions are also restricted, as the LIRA can only be funded with pension assets.

Once you have made the decision to transfer your assets out of the pension plan, you would open a LIRA at your financial institution and transfer the assets there using form T2151. If you already have an existing LIRA you can combine them if they are under the same pension jurisdiction. After the transfer is complete, you can invest these assets in the same manner that you would invest your RRSP assets.

How can I get the money out of a LIRA?

Even when you reach the point where you are ready to retire and draw on your LIRA, your ability to draw on these assets are still limited. First they can be converted into an annuity, where a future stream of payments are made based on the value of the LIRA and other factors such as estimated mortality.

If you choose not to go the route of the annuity, then your LIRA will be transferred into a Life Income Fund (LIF) no later than the year in which you turn 71, much like the RRSP becomes a RRIF. As with the RRIF, each year you will be required to take a minimum payment from your LIF. Where it differs is the LIF also has a maximum payment each year which cannot be exceeded.

With the increase in the amount of LIRAs the government has made a major change to increase the flexibility for those who rely on these accounts for their retirement income. They now allow for a one-time unlocking of up to 50% of your LIRA into another tax-deferred vehicle, such as an RRSP or a RRIF, once you have reached the calendar year in which you turn 55. With half of the balance unlocked, this portion will no longer be subject to the maximum withdrawal limits allowing greater financial flexibility for Canadians. This provision is now also available in some provinces. Check with your province if your LIRA is provincially regulated.

Are there ways to unlock the account before retirement?

There are situations under which a LIRA may be unlocked. Again I am going to go over the federal rules. These may vary by province.

If you are 55 or older and have only a small balance in the LIRA, you may unlock it. A small balance is defined as less than 50% of the current Year’s Maximum Pensionable Earnings (YMPE), $27,450 for 2016. If the balance in the LIRA is less than this figure, it may be unlocked and moved to an RRSP.

Next is becoming a non-resident. If you are a non-resident of Canada for two consecutive years, you can unlock your LIRA.

Third is for health reasons. If you have been diagnosed and certified by a doctor to have a shortened life span, you may unlock your LIRA.

If you are experiencing financial hardship you may unlock up to 50% of the current YMPE. To reach the maximum you must have no income. If you have some income, but it is still low, there is a formula to calculate how much you can unlock. Once your income reaches 75% of the current YMPE, the amount you may unlock reaches zero.

As the LIRA becomes more commonplace, understanding how it works will be more common knowledge like how the RRSP works. Until that time you may have questions about it. If you do, please send me a note at matt@tridelta.ca or give me a call at (416) 733-3292 X230 and I would be happy to discuss your situation with you.

Matthew Ardrey
Written By:
Matthew Ardrey
VP, Wealth Advisor
matt@tridelta.ca
(416) 733-3292 x230

TriDelta innovates with new optional fee structure

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money

Introducing TriDelta Partnership Fees – No Gain, No Pain

At TriDelta we pride ourselves on proactively responding to market trends and also client feedback. We have had a few clients say; “I lost money, how come you made money?” when market performance was poor in bad market years.  To date, this is just the way investment management fees are charged. TriDelta Financial has now decided to deal with this concern head on.

TriDelta Financial (tridelta.ca) and its Investment Counselling arm, TriDelta Investment Counsel (trideltainvestments.ca) will offer all clients with $500,000 or more of investment assets and a risk profile ranging from Balanced to Growth (minimum of 50% Equity and/or Alternative Investment asset mix to qualify), two options for fees.  One is traditional while the other is a new innovation in the Canadian market.

The Partnership Fee is effectively – if you lose money over a year, your investment management fees will be returned to your account.  Even if you have low returns (from 0% to under 3%) TriDelta will provide a partial refund of your management fee.  On the other hand if you have strong returns, starting at 7%, you will pay a performance bonus.

The message is clear.  If you do well, we do well.  If your returns are low, we do not do well either.  It aligns the interests of TriDelta Financial with our clients in a way that has simply not been found in the Canadian investment world.

Basics of our Partnership Fee program:

Based on Rate of Return on a Household Portfolio over a year, after traditional fees are charged:

  • If return is less than 0%, there is a refund of all traditional fees.
  • If return is between 0.00% and 2.99%, there is a refund of 0.5%.
  • If return is between 3.00% and 6.99%, the traditional fee applies.
  • If return is between 7.00% and 10.99%, there would be a 1% partnership fee.
  • If return is between 11.00% and 14.99%, there would be a 2% partnership fee.
  • If return is 15%+, there would be a 3% partnership fee.

The launch date on this TriDelta initiative is scheduled for Jan 1st 2017.

To participate in the Partnership Fee program, there is a 0.2% annual administrative fee charged.  This fee covers the administrative costs of the program, and is not considered part of ‘traditional fees’.

As you will appreciate this fee structure will only appeal to certain investors, but the important point is that we will offer this alternative subject to certain restrictions.

If you’re interested in exploring this further, please contact your financial advisor or if you’re not currently a client send a request to tedr@tridelta.ca and we will have a Wealth Advisor contact you to schedule a meeting.

Ted Rechtshaffen
Written By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

What you need to know about the new mortgage rules

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mortgage

On October 3rd , the federal government announced new mortgage requirements, which are designed to dampen the housing price euphoria.

Getting a mortgage approved at a great rate or maximizing the value of your real estate could both be impacted by these changes.  At TriDelta, we are able to help you or your children with getting the best mortgage, and also help those with their planning around whether to buy, hold or sell real estate.  Feel free to ask us for help in either of these areas.

These new requirements follow four rounds of changes made previously to tighten eligibility rules.  For new insurable loans between 2008 and 2012, the changes included:

  • the minimum down payment was increased to five per cent from zero
  • the maximum amortization period was reduced in stages to 25 years from 40 years and the maximum insurable house price was limited to below $1 million.
  • Buyers with a down payment of at least 5% of the purchase price, but less than 20% must be backed by mortgage insurance. This protects the lender in the event that the home buyer defaults. These loans are known as “high loan-to-value” or “high ratio” mortgages.

New rules include:

Applying a Mortgage Rate Stress Test to All Insured Mortgages.

Effective October 17, 2016, a stress test used for approving high-ratio mortgages will be applied to all new insured mortgages. This includes those where the buyer has more than 20 per cent for a down payment. This new stress test is designed to build in some wiggle room so new buyers can manage an interest rate rise. The home buyer would need to qualify for a loan at both their contract mortgage rate (currently +-2.5%) and the Bank of Canada’s conventional five-year fixed posted rate, which is currently 4.64%.

The stress test also requires that the home buyer spends no more than 39% (previously 32%) of income on home-carrying costs like mortgage payments, heat and taxes. The buyers also have to ensure their Total Debt Service (TDS) ratio, which includes all other debt payments does not exceed 44% (previously 40%). This shows the government easing up on previous limits as they allow home owners to allocate more of their income for housing and debt payments.

This new provision ensuring home owners have an ability-to-repay will put pressure on self-employed borrowers who will have to make sure they can document at least two years’ worth of sufficient income to get a mortgage.

Down payment requirements have also been boosted:

Under the changes Canadians can still put down five per cent on the first $500,000 of a home purchase, at least 10 per cent down on the portion of a home that costs more than $500,000 and for homes that cost more than $1 million will still require a 20 per cent down payment.

For those purchasing with less than 20% down, the affordability table below illustrates the impact of the new mortgage rules, indicating  the maximum house price before and after the October 17th changes.

Changes to Low-Ratio Mortgage Insurance Eligibility Requirements  –  Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages.

Impact of Changes: Based on year-to-date 2016 data, it is estimated that a little over one third of insured mortgages, mainly for first time home buyers, would have difficulty meeting the required debt service ratios and home buyers would need to consider buying a lower priced property or increase the size of their down payment. Additionally, approximately 50% to 55% of new insurance requests, would no longer be eligible for mortgage insurance under the new Low Ratio mortgage insurance requirements.

This will affect all home buyers who are seeking a mortgage that may stretch them too thin if interest rates were to rise.The government is responding to concerns that sharp rises in house prices in cities like Toronto and Vancouver could increase the risk of defaults in the future should mortgage rates rise.

An additional change that may come as a surprise to many, is the new reporting rule for the primary residence capital gains exemption. As you know, any financial gain from selling your primary residence is tax-free and does not have to be reported as income. As of this tax year, the capital gains tax is still waived, however the sale of the primary residence must be reported at tax time to the Canada Revenue Agency. Everyone who sells their primary residence will have a new obligation to report the sale to the CRA. The change is aimed at preventing foreign buyers who buy and sell homes from claiming a primary residence tax exemption for which they are not entitled. However this will catch many off guard.

These new rules will definitely have an impact on new and upgrading homebuyers, but also come into effect at a time when many who are thinking of retiring, may not be able to sell their homes as quickly or for as much as they originally hoped to fund their retirement plans.

To review how these changes may impact your home purchase or retirement plans, please contact us for a no obligation review of your situation.

Lorne Zeiler
Written By:
Heather Holjevac
Senior Wealth Advisor
heather@tridelta.ca
416-527-2553
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