First Time Buyer's Corner: Changes to CMHC Insured Mortgages

As the number of insured mortgages has been increasing, the government, as of last October, instigated some changes in an attempt to reduce the possibility that current buyers might be unable to afford their homes if interest rates increase.

Background: If a buyer has a down payment of less than 20% of the purchase price of the home, the buyer is required to obtain mortgage insurance. These are known as high ratio insured mortgages. With the rising prices in Toronto it has been increasing difficult for purchasers to put down the full 20% deposit and this has resulted in an increase in the number of insured mortgages.

Recent Government Changes: In an attempt to reduce the possibility that buyers might be in financial difficulty if interest rates increase, the government has made the following changes:

1. As of last October these buyers will be subject to what is now called a “stress test”. Previously the buyer would simply have to qualify for the mortgage at the going mortgage rates which as of the day of writing is approx. 2.54%. Now the buyers have to qualify for the Bank of Canada’s posted rate for a 5 year fixed mortgage and that rate is approx. 4.49% - quite a difference.

2. They must also meet qualifications for GDS ratio of 39% and a TDS ratio of 44%* at these posted rates.

3. The maximum amortization term is reduced to 25 years.

4. The property being purchased must be less than $1,000,000.

5. The buyer must have a minimum credit score of 600.

6. If the property being purchased is a single unit, it must be owner occupied.

I hope these facts add some clarification.

*For a complete explanation of these terms and for any other questions or comments feel free to contact me.