New Changes - Department of Finance
Here's what Lori Watson emailed:
I’m sure most of you have heard today … Big changes to insured financing coming ASAP.
Here is the official announcement from the Minister of Finance regarding the new rule changes for the Mortgage market as well as the Technical Backgrounder.
Please read up on official announcements as you find them.
Applying a Mortgage Rate Stress Test to All Insured Mortgages
- · Effective October 17, 2016, all insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate. This requirement is already in place for high-ratio insured mortgages with variable interest rates or fixed interest rates with terms less than five years.
- · For borrowers to qualify for mortgage insurance, their debt-servicing ratios must be no higher than the maximum allowable levels when calculated using the greater of the contract rate and the Bank of Canada posted rate. Lenders and mortgage insurers assess two key debt-servicing ratios to determine if a homebuyer qualifies for an insured mortgage:
- · Gross Debt Service (GDS) ratio—the carrying costs of the home, including the mortgage payment and taxes and heating costs, relative to the homebuyer’s income;
- · Total Debt Service (TDS) ratio—the carrying costs of the home and all other debt payments relative to the homebuyer’s income.
- · The announced measure will apply to new mortgage insurance applications received on October 17, 2016 or later. This measure will not apply to mortgage loans where, before October 3, 2016: a mortgage insurance application was received; the lender made a legally binding commitment to make the loan; or the borrower entered into a legally binding agreement of purchase and sale for the property against which the loan is secured. Mortgage loans for which mortgage insurance applications are received after October 2, 2016 and before October 17, 2016 are also not affected by the rule change, provided that the mortgage is funded by March 1, 2017. Homeowners with an existing insured mortgage or those renewing existing insured mortgages are not affected by this measure.
Changes to Low-Ratio Mortgage Insurance Eligibility Requirements
The Government also announced today changes to the eligibility rules for newly insured low-ratio government-backed insured mortgages. These new eligibility criteria will help target the funding support provided by government-backed low-ratio mortgage insurance towards safer forms of lending.
Effective November 30, 2016, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value ratio mortgage insurance must meet the eligibility criteria that previously only applied to high-ratio insured mortgages. New criteria for low-ratio mortgages to be insured will include the following requirements:
1. A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
2. A maximum amortisation length of 25 years;
3. A maximum property purchase price below $1,000,000 at the time the loan is approved;
4. For variable-rate loans that allow fluctuations in the amortisation period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
5. A minimum credit score of 600 at the time the loan is approved;
6. A maximum Gross Debt Service ratio of 39 per cent and a maximum Total Debt Service ratio of 44 per cent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
7. A property that will be owner-occupied.
These changes will apply to low-ratio mortgage loans insured on November 30, 2016 or later. Low-ratio loans for which mortgage insurance applications were submitted prior to October 3, 2016 will not be affected. These new criteria will also not apply to loans for which mortgage insurance applications were submitted between October 3, 2016 and November 30, 2016, provided that the loans are insured by November 30, 2016.
As more details become available, I will pass on information.
Lori Watson, Mortgage Expert
Oceanside Mortgage Brokers & Associates
Canadian Mortgage Experts/DLC"