Recent Mortgage Rule Changes

We have been tracking the recent mortgage rule changes announced by the Finance Ministry, as well as the new underwriting guidelines being put into practice by CMHC and Genworth (and anticipated to be the case with AIG). We are watching closely to see the final outcome of these new practices.

While these changes will serve to uphold the overall integrity of our financial system in Canada, we are concerned that they could be intrusive and unnecessarily impact on certain mortgage transactions.

As Canada’s largest mortgage brokerage, we are working actively with several of our industry associations, CAAMP, MBABC and AMBA, to get further clarification and to make sure that the brokerage industry’s voice on these issues is heard by policy makers.

Here is a brief rundown of the changes:

What’s changed in terms of qualifying for a mortgage?
• As of April 19, borrowers applying for a variable-rate mortgage or a fixed-rate mortgage with a term of less than 5 years must qualify based on the Bank of Canada’s five-year fixed posted mortgage rate. Note that 5 year terms can be qualified at the contract rate.

What do rental property owners need to know about the recent changes?
• A minimum down payment of 20 per cent will be needed for government-backed mortgage insurance on non-owner-occupied properties such as rental properties.
• There are also changes in how much of rental income can be used when qualifying for financing – CMHC and Genworth have indicated that now 50 per cent of the rental income will be added to the borrower’s income, down from 80 per cent rental offset from the payment that will be used when calculating the borrower’s TDS.

What about the self-employed?
• CMHC has stated that as of April 9, self-employed individuals who are applying for a stated-income mortgage will now have to put down at least 10 per cent, up from 5 per cent today.
• CMHC has also tightened some of the rules around who can qualify for their stated income self employed product. Borrowers that have been self employed for more than 3 years will now have to qualify based on income declared to CRA and will have to provide adequate income confirmation. The same applies for those earning income through commissions. CMHC’s stated income self employed product is now aimed more at those who have recently become self employed and have difficulty providing documentation.