CMHC (Canada Mortgage and Housing Corporation) has made some changes to their insured lending policies. If you are buying a home with less than 20% down payment, you are required to purchase mortgage default insurance. The premium is usually added to the mortgage amount. There are 3 providers in Canada, CMHC, Canada Guaranty and Genworth. So far, only CMHC has made these changes. These changes will come into affect July 1st, 2020.
They include –
- At least on borrower must have a minimum credit score of 680. This can be anyone on the mortgage and does not have to be the principal borrower or highest wage earner.
- You will not be allowed to borrower your down payment any longer from lines of credit, credit cards etc but you will still be able to receive a gift from a close relative, use your liquid assets or receive a government grant.
- The debt servicing ratios (GDS/TDS) are being reduced to 35/42 from 39/44. This means that instead of having a maximum percentage of your income being used for principal, interest, heating and property taxes being 39%, it will now be 35%. And instead of using 44% of your income for all those plus all other monthly debts and expenses, it will now be 42%.
These ratios are being used by some banks and lending institutions already but will now be required of all mortgage applications submitted to CMHC. This may adversely affect some home purchasers but not all considering the average debt servicing ratios in Canada is actually 27/37, well within the new CMHC range.
Canada Guaranty and Genworth have not changed their policies at this time and have said they will not however, we will have to see if that changes.
These changes are not expected to have a large impact on the housing markets across Canada but we will have to follow closely to monitor the situation.