The Department of Finance today announced that it would change some of the rules for high-ratio mortgages, and that “these requirements will apply to all government-backed mortgage insurance policies (whether issued by CMHC or private insurers) for high-ratio mortgages on residential properties with up to four units.” These rules will come into effect on Oct 15, 2008. If you are in the market and would like to avail of a zero down mortgage or a 40 year amortization mortgage, you need to act quickly. For that matter, there may be added documentary requirements for borrowers applying under stated income programmes.
Here are some highlights of the changes:
1. Maximum amortization reduced to 35 years for new government-backed mortgages.
2. Minimum 5% down payment for new government-backed mortgages. Borrowers may borrow their 5% down payment, but it will not be insured under the new guarantee framework.
3. New credit score floor of 620 for new government-backed mortgages. There will also be limited exceptions to this rule, recognizing that there are some borrowers with credit scores below 620 that otherwise represent a low credit risk.
4. Minimum loan documentation standards “to ensure that there is evidence of reasonableness of property value and of the borrower’s sources and level of income.” The Department of Finance’s announcements today did not elaborate on this point.
5. No government guarantee for high-ratio mortgages where no amortization is required in the first few years. This includes high-ratio mortgages that begin with “interest-only” payments and HELOCs.
6. Maximum of 45% on borrowers’ TDS ratio for new government-backed mortgages.
Exceptions would be allowed after October 15th where they are needed to satisfy a binding purchase and sale, financing, or refinancing agreement entered into before October 15, 2008. Canadians who already hold mortgages will not be affected by these changes.
The Department of Finance stated that “today’s announcement marks a responsible and measured approach by the government to ensure Canada’s housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada.” It also noted that mortgage arrears in Canada have remained low in recent years.
Here is the link to the Department of Finance announcement: http://news.gc.ca/web/view/en/index.jsp?articleid=409769&categoryid=16
