NEW CMHC Restrictions: New Rules for Low Ratio Mortgages

Learn more about the new CMHC restrictions.

It seems hardly a week goes by this spring without a new announcement from Canada Mortgage and Housing Corporation – another slew of changes were announced today, targeting multi-unit developers and low-ratio mortgage borrowers.

What are the New Changes for Mortgage Borrowers?

As of July 31, low-ratio mortgage borrowers who take out CMHC insurance will be subjected to the same restrictions as high-ratio borrowers. These include:

  • A maximum home price of $1 million
  • An amortization cap of 25 years
  • Debt-to-income requirements: 39 per cent for Gross Debt Service and 44 per cent for Total Debt Service ratios, respectively.

The group affected are home buyers who pay more than 19.99 per cent down on their mortgage, and who also choose (or their lender chooses) to take out additional insurance to securitize the mortgage, further limit risk, or help with capital requirements. This insurance, however, is optional unlike high-ratio mortgage insurance, which is required by law for any buyer paying less than 19.99 per cent down on their home purchase.

Unlike when the high-ratio version rolled out in 2012 (which affected close to 50 per cent of buyers), these changes are not expected to have a “material impact” on the market; the CMHC estimates approximately 3 per cent of current customers will be affected.

Discontinuation of Multi-Unit Coverage Insurance

Mortgage consumers need not fret about this change; this was a product used by condo developers to finance project construction, and had been in very low demand; in fact, the CMHC says it hasn’t had to cover such a project since 2011, and states, “Financing needs for condominium construction are well served by the marketplace without CMHC’s involvement.” Would-be condo buyers should note that this discontinuation does NOT affect their purchase or access to mortgage default insurance in any way.

CMHC is Cleaning House

As the CMHC is a Crown corporation, taxpayers are the ones who must foot the bill for any defaults on properties it insures.

It’s part of the government’s mandate to decrease this exposure, and so CMHC is trimming the fat by cutting underused or high-risk insurance products. In May, CMHC also discontinued their 2nd Home insurance coverage, and heightened qualification requirements for self employed buyers.

Stated their release, “The changes are a business decision designed to increase market discipline in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC. They also support the government’s continued efforts to adjust the housing finance framework to restrain growth of taxpayer-backed mortgage insurance, as noted in Economic Action Plan 2014.”

This means more changes could be in store for mortgage borrowers. Be sure to check back as we report the latest developments. It has yet to be confirmed whether the nation’s other two mortgage insurance providers, Genworth and Canada Guaranty, will also implement the changes.

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