GST on your mortgage coming soon?

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On Global News Calgary, Friday, March 26, on the Consumer SOS segment by Tony Tighe, I was asked about what may be the result of new changes to allow GST to be charged on some components of Financial Services.  This may add to that interview.  

Recent Federal Budget proposals include charging GST on some components of Financial Services.   This is where the financial services involves Investment Management, Credit Management and Faciliatory Services. 

How may this effect your mortgage rate?   To this point, when you use the services of a mortgage broker, in most cases the mortgage broker does not charge you a fee.  The broker discusses what aspects of a mortgage are important to your and reviews your personal financial circumstances that fall in the various lender guidelines for giving a mortgage.

Once you have selected a mortgage the broker has introduced you to, the lender pays the mortgage broker a commission.  So far, that has been GST excempt.   New rules say pay GST.   That is for Faciliatory Services.

Increased tax costs are generally paid by the consumer, so this increased cost levied by the government will be reflected in the rates the lenders offer. They need to pay the tax money collected from what you pay.  So, increasing mortgage interest rates will not be influenced just by global rate of return competition and inflation- but also by the additional costs of GST on the acquisition and administration of mortgages when they are contracted out.

What is not yet specifically mentioned is a component in the increased taxation of GST in Financial Services is Credit Management.   When you have less than 20% down payment, the banks and trust companies are obligated to have your mortgage insured for any loss incurred in case of default.  That could also be called Credit Managment.   It protects the bank from loss for credit issued to you.

What if GST is applied to default insurance?   For a home purchase of $380,000 with five percent down payment, and a thirty-frive year amortization mortgage- the default insurance is almost $11,000 added to the mortgage balance.  GST, if added, would be almost $550 additional costs you finance over the life of that mortgage.

GST charges do not have to stop there.  What about Title Insurance the lender asks for to allow the advance of mortgage funds before the mortgage is registered on the title, or to cover unforeseen encroachment or permit issues with the property?   More GST and more from your pocket when you are obtaining a mortgage.