Mortgage Insurance Rules Are Changing: Here’s What You Need To Know
Canadian Mortgage and Housing Corporation (CMHC) announced this week that due to the effects of the COVID-19 pandemic on Canada’s economy, they foresee a 9%-18% decrease in house prices over the next 12 months. In response to this projected change, CHMC has stated that effective July 1st new mortgage insurance applicants will face additional screening requirements.
The major change to report is that gross and total debt service ratio maximums for insured mortgages (less than 20% down), will be reduced from 39%/44% to 35%/42%.
“This change will result in an 10%-12% reduction in purchasing power for insured borrowers,” says Faris Team in-house Mortgage Broker, Tim L. Walker. “If someone is currently pre-approved for around a $500k purchase, come July 1, they may only qualify for around $440k.”
In addition, CHMC will require at least one borrower to have a credit score greater than 680, whereas previously scores as low as 600 could pass. “In practice, however” says Tim, “anything below 650 was tough to get through.”
CHMC has also eliminated it’s “borrowed down payment” options, which reportedly weren’t widely used.
In an effort to protect the economic futures of Canadians, there’s no mistaking that these changes will be hardest on first-time buyers trying to enter the housing market. But there’s still time to act.
“With CMHC’s upcoming rule change we encourage buyers that have less than 20% as a down payment to find something to purchase before the end of the month,” urges Faris Team CEO and Broker, Mark Faris. “These changes will significantly impact first-time buyers. CMHC is a company that insures mortgages for buyers that have less than a 20% down payment, so if you have more than 20%, you will not need their services.”
It’s recommended that buyers take action these next few weeks, as their maximum purchase price could drop by more than 10% after these changes take effect. For sellers, this news could mean there are fewer buyers empowered to make offers come July, but not everyone should worry. “I don’t see this impacting the higher-priced market as most buyers looking in this budget have 20% or more to put down,” says Faris. “Sellers listed in a lower price range, however, should seriously consider any offer they currently have in hand.”
While CMHC is the predominant default insurer in the country, there are two private default insurers as well (Genworth & Canada Guarantee). Both private default insurers have indicated, surprisingly, that they will not be following CMHC in these new changes, which is certainly historically out of the norm. This may create a loophole for some buyers, allowing them to bypass CMHC and instead have their mortgage insured (currently with no extra cost) by one of the other default insurers.
If you want to discuss this loophole, or your options related to a new or existing pre-approval, don’t hesitate to reach out to Tim L. Walker at:
TIM L. WALKER | Mortgage Broker | M11000308
Anthem Mortgage Group | Brokerage #10294
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Click here to read the full press release from CMHC.
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