***New Rules for all Insured Mortgages-Effective October 17***
Uniform rules for all insured mortgage
Starting on October 17, 2016, all new mortgage borrowers with a down payment of less than 20% and seeking mortgage insurance (high-ratio mortgages) will be required to qualify at the posted rate for a conventional mortgage for a five-year term (presently 4.64%) or the contract rate, whichever is higher. Currently, this qualifying requirement is imposed only on insured mortgages with a variable rate or a fixed rate with a term of less than five years. Moreover, effective November 30, 2016, the standards for low-ratio mortgage portfolio insurance will be same as those for insured high-ratio mortgages. This means that mortgages in a portfolio to be insured will be restricted to 25 year in length of amortization, a maximum of $1,000,000 in value, a credit score of 600 or higher, and a maximum Gross Debt Service of 39% and Total Debt Service of 44% calculated with the posted rate for a five-year conventional rate or the contract rate, whichever is higher.
Effects of qualifying rule changes could be material
Of the measures announced today, the changes to the mortgage insurance qualifying requirements have the potential to exert the most significant effect on Canada’s housing market in the near term. Imposing a higher qualifying rate on insured mortgages with a five-year term will affect the largest segment of Canada’s mortgage market. Fixed-rate mortgages represented a little more than 75% of new mortgages in Canada in 2015, according to Mortgage Professionals Canada, the majority of which were of a five-year term. The use the posted rate of 4.64% for five-year fixed rate mortgages (as tabulated by the Bank of Canada) in the calculation of GDS and TDS ratios would raise the bar for mortgage insurance qualification.
Because they tend to be the primary users of mortgage insurance, first-time homebuyers necessarily would be the most affected by the change. It is important to note that these changes will have implications not just in Vancouver and Toronto but all across Canada.