Canada Mortgage and Housing Corp. is toughening up its rules to make it harder to get mortgage insurance, a move that would reduce demand from riskier borrowers and keep prices in check at a time of economic uncertainty.
The new criteria, effective July 1, are designed to help weed out borrowers who are less likely to make their payments and could reduce demand for homes at a time when real estate sales have dropped. The changes will affect first-time home buyers, economists say.
Some of these changes from the national mortgage insurance provider will include:
- banning the use of borrowed funds for a down payment
- require a higher credit score from borrowers
- restricting the maximum GDS/TDS (debt ratios) that a borrower can have
How does this affect my affordability?
The easiest way to show this is with an example.
Let’s assume the following numbers for a couple looking to purchase a home:
- Total gross household income of
$100,000 - Property tax estimate of $2,500 annually
- Qualifying based on today’s mortgage qualifying rate of 4.94%
In today’s current CMHC environment the maximum mortgage this couple would qualify for is $479,000 however after June 30th this maximum drops down to $424,000 – a difference of $55,000!
What you need to know
The good news is that the two other mortgage insurers in Canada (Genworth and Canada Guaranty) have not followed suit (yet!) with the crown corporation. In fact, Genworth just announced earlier today that they do not intend to make any changes to their underwriting policies unlike CMHC and are well positioned to manage the risk. Some banks will only insure your mortgage with CMCH. Now is the time to speak to a mortgage broker to work with lenders that give you the option to insure the mortgage with one of the other mortgage insurers. It could literally mean the difference between thousands more in an approval. Sometimes it’s worth paying a little today to save a lot tomorrow.
