Four Key Changes Recently Made to Government Insured Mortgages in Canada

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In its fourth change to the rules for government-backed mortgages since 2008, the Canadian Finance Ministry has made four new adaptations to the existing list of guidelines in order for consumers to qualify for government-backed mortgages. The most significant impact lies on first time homebuyers, with the changes making it much more difficult for them to obtain a mortgage given the tighter rules.

Effective July 9, 2012 the following changes were made to the mortgage guidelines overseen by the Ministry:

Maximum Amortization Reduced to 25 Years

The maximum amortization period has been reduced from 30 years down to 25 years, meaning that mortgagors will now be held down to the mortgage for five years less than what they have doing until recently. This will change the monthly payment of course given the maximum mortgage term length has been reduced. According to an RBC report, a typical mortgage of $288,000 with a rate of 5.24% will amount to an increase of $136 each monthly payment assuming 25 years versus the original 30-year amortization schedule.

Minimum of 20% Equity Required To Borrow Against the Property

Prior to these newest changes, Canadians were able to borrow against their property in the amount of 85% of the value of their homes. However now, the maximum amount has been lowered to 80%.

Gross Debt Service Now Required To Be at 44%

Mortgagors will now face lower debt service ratios with the limit for gross debt service ratio (GDS ratio) at 39% and the limit for the total debt service ratio (TDS ratio) reduced to 44% from 45% as it was prior to July 9, 2012.

Properties Over $1M Will Not Qualify for Government Insured Loans

Government-insured mortgages will no longer be available to homes that have a purchase price of $1M or higher. The general consensus being that these homes represent a minority in the real estate industry in Canada and the burden of insuring these loans should not fall on taxpayers.

New Guidelines for Residential Mortgage Underwriting Also Announced Recently

The Office of the Superintendent of Financial Institutions announced on June 21, 2012 that there would be some additional rules in the underwriting guidelines for financial organizations. Highlights include reducing the maximum loan-to-value on a home equity line of credit from 85% to 60%, more stringent qualifying rates for conventional mortgages and the right of lenders to recalculate loan-to-values anytime subsequent refinancing is sought or if deemed necessary.

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If you have any questions at all about how these changes will impact you or if you would like assistance with any of your real estate needs, please do not hesitate to call me at 416 918 5979. I would be happy to help!