2012 ANNOUNCEMENT ON MEASURES TO SUPPORT THE LONG-TERM STABILITY OF CANADA'S HOUSING MARKET
Q. Why is the Government making these changes at this
A. These measures will support the long-term stability of the
Canadian housing and mortgage markets and promote savings through home
ownership. They are intended to be timely, targeted and measured. The measures
will reinforce the importance of borrowing responsibly and using home ownership
as a savings vehicle. The Government actively monitors developments in the
housing market and is committed to taking action when necessary.
Q. What will be the impacts of the adjustments to the rules for
government-backed mortgage insurance on the Canadian economy?
adjustments to the rules for government-backed mortgage insurance will provide
significant benefits to the Canadian economy by supporting the stability of the
housing market and promoting savings through home ownership. The short-term
impact on the housing market is expected to be manageable, given that the
majority of Canadian families are already taking a prudent approach in managing
household debts. In the long term, these measures are expected to have a
positive impact on the economy through higher savings and a lower number of
financially vulnerable households.
Q. When do these measures take effect?
A. The new
measures will take effect on July 9, 2012.
Q. Are further measures expected?
A. The Government
actively monitors developments in the housing market, consumer debt and the
economy, and is committed to taking action when necessary to support the
long-term stability of the housing market and protect the investment of Canadian
Q. Do these measures apply to multi-unit buildings?
These standards apply to mortgages on residential property with four units or
Q. Why is the Government lowering the limit on refinancing
A. The new measure announced today will reduce the maximum
amount on refinancing to 80 per cent from 85 per cent of the value of the home.
Limiting the amount of refinancing will promote saving through home ownership
and limit the shifting of consumer debt into mortgages guaranteed by
Q. Why is the Government lowering the maximum amortization period
A. The new measure announced today will reduce the maximum
amortization period to 25 years from 30 years. Limiting the maximum amortization
period will reduce the total interest payments Canadian families make on their
mortgages, helping them build up equity in their homes more quickly and pay off
their mortgages sooner. For example, reducing the amortization period from 30
years to 25 years on a mortgage would result in a moderate increase in the
monthly payment. However, over the life of the mortgage, this modest increase
would result in a significant reduction in the total interest payments. For a
$350,000 mortgage at 4 per cent interest rate, the interest savings could be
Q. Why is the Government limiting the maximum gross debt service
(GDS) and total debt service (TDS) ratios?
A. The GDS ratio is the
share of the borrower's gross household income that is needed to pay for
home-related expenses, such as mortgage payments, property taxes and heating
expenses. The TDS ratio is the share of the borrower's gross income that is
needed to pay for home-related expenses and all other debt obligations, such as
credit cards and car loans. The new measure announced today will set the maximum
GDS ratio at 39 per cent and reduce the maximum TDS ratio to 44 per cent. These
debt service ratios measure the share of a household's income that is required
to cover payments associated with servicing debt. Both measures are already used
by lenders and mortgage insurers to assess a borrower's ability to pay. Setting
a GDS limit and reducing the TDS limit will help prevent Canadian households
from getting overextended and reduce the number of households vulnerable to
economic shocks or an increase in interest rates.
Q. Why is the Government introducing a maximum allowable price for
A. The new measure announced today will establish
that government-backed mortgage insurance is only available for a new high
loan-to-value mortgage if the home purchase price is less than $1 million.
Because homes priced at or above $1 million would not be eligible for
government-backed high ratio insurance, borrowers for these homes would require
a down payment of at least 20 per cent. Introducing a maximum allowable price
will ensure that government-backed mortgage insurance operates the way it was
originally intended: to help working families and first-time homebuyers. This
measure is expected to have a negligible impact on working families and
first-time homebuyers as the vast majority of these borrowers purchase
properties priced below the threshold.
CONCERNS ABOUT BORROWERS
Q. What is required to qualify for an exception to the new
A. The new measures will apply as of July 9, 2012.
Exceptions will be made to satisfy a binding purchase and sale, financing or
refinancing agreement where a mortgage insurance application has been made
before July 9, 2012. While the changes come into force on July 9, 2012, any
mortgage insurance applications received after June 21, 2012 and before July 9,
2012 that do not conform to the measures announced today must be funded by
December 31, 2012.
Q. Will a purchase and sale agreement dated prior to July 9, 2012 be
considered binding if there are outstanding conditions that have not been
fulfilled prior to July 9, 2012?
A. Yes, if the date on the purchase
and sale agreement is earlier than July 9, 2012, and a mortgage insurance
application has been made prior to that date, the new parameters will not apply,
even if the conditions of the agreement have not been waived.
Q. Will the new refinancing rules allow a borrower with a mortgage
above 80 per cent loan-to-value (LTV) to refinance by extending the amortization
A. No. Effective July 9, 2012, borrowers will not be
permitted to refinance a mortgage above an 80 per cent LTV, unless the borrower
has a binding refinance agreement dated prior to July 9, 2012, and a mortgage
insurance agreement has been made prior to that date.
Q. I have a written mortgage pre-approval from a lender, dated before
July 9, 2012 with a 30-year amortization. Will I still be eligible for a 30-year
amortization if I don't sign an agreement of purchase
and sale until July 9,
2012 or later?
A. No, a mortgage pre-approval without an agreement
of purchase and sale is not sufficient to qualify for a 30-year amortization.
You may have a 30-year amortization only if your agreement of purchase and sale
is dated before July 9, 2012 and you have made a mortgage insurance application
before July 9, 2012. You may wish to discuss with your lender to revise your
mortgage pre-approval using the new parameters announced today.
Q. Will the new parameters apply to assignment ("switch" or transfer)
of a previously insured loan from one approved lender to another?
No. As long as the loan amount and amortization period are not increased, the
new parameters will not apply to a switch/transfer/assignment of the mortgage to
a different lender.
Q. If I sell my current home and buy another, will the new parameters
apply if I transfer the outstanding balance of my insured mortgage to the new
A. As long as the outstanding balance of the insured loan, the
LTV ratio and the remainder of the amortization period are not increased, the
new parameters will not apply when the mortgage insurance is transferred from
one home to another.
Q. What if I need to increase the amount of my insured loan when I
sell my current home and buy another?
A. In this situation, the new
parameters will apply for any insured loan.
Q. If I bought a
condo that is not expected to be built for another two years, will the new
A. If you bought a condo and have made a mortgage
insurance application on or before June 21, then the new parameters would not
apply. If you buy a condo and make a mortgage insurance application after June
21, the new parameters will apply if the mortgage loan is not funded by December
Q. I already have an insured mortgage. How will
these changes affect me?
A. Mortgage insurance is good for the life
of the mortgage. Borrowers renewing their insured mortgages will not be affected
by these changes. For example, if a borrower had a 30-year amortization and
there are 27 years remaining on the mortgage, the mortgage can be renewed with a
27-year amortization, as long as no new funds are being added to the mortgage