# You’ll need to earn more money

Joycer posted this on the weekend, but it got held up in moderation and is worth a second look.  According to his analysis the new CMHC qualification rules for rental income are going to have a big impact for anyone counting on a ‘mortgage helper’ to qualify for a larger mortgage.  If your eyes don’t glaze over at the math, see if you can see any holes in this reasoning:

Since we’re talking about how the new rules will affect rental income, I thought I’d do some math to see the net result. For those of you who aren’t interested in the math, here’s the punchline:
After April 19th your annual qualifying income is reduced by 30x(monthly rent).

For example, suppose there is a house for sale with a rental suite that generates \$1000/month. If the potential buyers need an annual income of 70K to qualify for the loan before April 19th, then they will need to make 100K for the same loan under the new rules.

Here’s the math:
According to CMHC’s website, monthly housing expenses (which include taxes and heating) must not exceed 32% of your gross monthly income.

m = mortgage payment
r = rental income
i = gross monthly income
h = heating expenses
t = taxes

Under the current rules:
(m – 0.8r) + h + t = 0.32i

Under the new rules:
m + h + t = 0.32(i + 0.5r)
m + h + t = 0.32i + 0.16r
(m – 0.16r) + h + t = 0.32i

Comparing the changes, the difference between the old and new rules is (m – 0.8r) vs. (m – 0.16r). To qualify for the equivalent loan under the new rules the rental income would have to increase by 5 times. Since 50% of rental income is added to your gross income, that means your gross monthly income needs to increase by 2.5 times rent. For an annual salary that means 2.5 x 12 = 30 x rent.

You can verify this on the CMHC’s own calculator:
http://www.cmhc-schl.gc.ca/en/co/buho/buho_007.cfm

For example if you are using the \$1000/month rent example it will increase your maximum monthly mortgage payment by \$800 with the old rules.

If you put in \$5000 for the monthly income (does not matter tax/heat you use), then change it to 5000 + 2.5 x 1000 = 7500 you will see the maximum monthly mortgage payment increases by \$800 just like under the old rules. The difference though is an income of 60K vs. 90K!

Addendum: Above are the two formulas I came up with, one as change in principle under the new rules, and the other the change in rent. It’s interesting to play around with the numbers, for example a \$600,000 mortgage requires \$2650/month over 35 years at 4%. Assuming this is a typical detached mortgage for someone with a suite that generates \$1250/month, the same people will now qualify for 22% less mortgage or 130K less. In order to make up the gap previously they need to increase their monthly income by \$2500.

One change I can see coming from this is how the suites are valued when selling a home. In my example above, the suite adds an extra 130K to the mortgage a potential buyer can qualify for compared to the new rules. The only way around the rules of course is to come up with 20+% down… maybe Flaherty did effectively raise the minimum down payment for homes with suites to 20%.

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To anonymous #37&38…I will say it know, and twice if necessary. When you are paying your dealers, prostitutes and other demented side activities, while your overweight miserable wives sit at home. Make sure they claim their income. Personally I am sick of paying outrageously straight forward higher taxes on all purchases because of you in knocked off monkey suites and all your illegal activity… Get some education before you blurt crap! Hey, maybe even try a real job. Test… repeat this note to your secratary word for word from memory. Can't can ya, I can place 50 orders at one time, carry on a converstion with some looser asshole as yourself, smile, listen to your fat miserable wife while she is treating me like crap, carry on money transactions etc… And that is only the first ten mins. of my… Read more »

Hey to 'get a real job'… You have not a clue what you babble! You get a real personality, or a penile implant or stop paying for sex or etc…. Sorry for all your imperfections, but it's not our fault. It's polyester paper pushing little people like you that ruin everything about the middle class workers. You go out, I bet, just to treat people like shit-where you think can get away with it… so you think! It's a small world. Oh but yes, apparently you see that every day in the bathroom mirror. Get your facts straight before you reach for your next donut behind that pre-fab desk you hide behind! Be careful what you eat or drink…

borked : To have totally fucked something up. Usually by doing something stupid. Specifically used to describe technology that is broken.

There are some benefit to declare rental property.There is a rental rebate upto \$10,000 per \$ 500,000 purchase of rental properties and or upto \$10,000 for new home purcase as principle residence,this amount would be equall to 13% of new hst law when ever that law will come to affect,If your mortgage payment is equall to monthly expenses you aren't paying any tax on rental income. New insurance policy cover upto 100% for any annual rent loss unless unit get back to previous condition and upto \$60,000 for repair or reno assessments applied by strata act or without strata act.

I doubt many small-time landlords properly disclose their income. Yeah, a small basement suite in a family home is of little concern (and can probably have write-offs to). Replace your siding, and say a third of the cost is for the basement suite or whatever.

It is the sleazy vermin who have a bunch of rundown properties that are the worst dodgers IMHO. But this is a potent final weapon for any wronged tenant. CRA is very happy to take anonymous tips about this. LOL known from personal experience.

Below 10k extra income Revenue Canada usually doesn't bother. If your property is not your primary residence and you rent it out they will care.

A quick question about rental suites. How many people declare the income from their suite on their taxes? I know a lot of people here in NZ just don't declare. Is this the done thing over in BC? I know what Canada is like with taxes ; )

84: Yes, if you buy now, you're sure to be borked.

@#66

That link is garbage. It is showing Seattle as having a boom with no bust, and well here's Seattle house prices:

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"We want the finest wines available to humanity. And we want them here, and we want them now!"

Dailies – List || Sold

Vancouver East & West*

New Listings – 109

Back On Market Listings – 0

Price Changes – 40

Sold Listings – 56

Vancouver All Areas*

New Listings – 314

Back On Market Listings – 8

Price Changes – 118

Sold Listings – 185

Much of the U.S. Did Not Have Housing Bust: I don't know why this is being voted down, it's a good map and it's mostly correct, although I think "boom, no bust" should read "boom, no bust YET". But note the prices in those cities so marked – e.g. Seattle is now about 1/2 the price of Vancouver and is about 25% down from peak (guess that's not a "bust"). Portland is cheaper still. ALL of the cities with peak price/rent anywhere close to Vancouver have seen a major bust. http://2.bp.blogspot.com/_pMscxxELHEg/S7IPBTCQHwI… The problem is that although the non-bubble part of the US is quite big, it's quite lightly populated except for Texas. Thus a very large part of the RE valuation in the US was in bubble areas, and so the decline in valuation in these areas created a massive… Read more »

I've never seen so many rants about tipping on a blog that has absolutely nothing to do with the hospitality industry.

I'll give you all a tip; 'don't fry bacon with your shirt off.'

Inventory

Mar 31, 2005 = 10820

Apr 1, 2005 = 10564

Mar 31, 2006 = 9268

Apr 1, 2006 = 9097

Mar 31, 2007 = 11137

Apr 1, 2007 = 10794

Mar 31, 2008 = 13063

Apr 1, 2008 = 12851

Mar 31, 2009 = 15598

Apr 1, 2009 = 15125

I'm a mortgage borker and over the last two days I probably borked over 300 mortgages as people rushed to lock in before the jump. Sales are going to skyrocket over the next couple of months now. Smart people know when to buy and the time is now before rates rise even more.

How many will pay for \$10 beers on Granville now.

taylor192: there is a typical drop in listings at month end. Likely inventory be below 15K until early April. There's a small chance of inventory temporarily hitting 15K before April 1st.

Backpeddling Global TV Stooge Mikey Campbell reports that ‘many BC homeowners are maxed out and in real trouble’ with the rate increase Bwahahahahahahahahaha.

Just imagine what they will have to say when the REAL increases start coming! Oh, it makes me all warm and fuzzy inside.

silly cub very, very happy!

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