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More on the New Insured Mortgage Rules

We’ve received clarification on a few items.  Here’s the latest…

  • The new rules technically only apply to mortgages closing ON or AFTER October 15, 2008.  Although some lenders have already started enforcing the new standards.  If you want 100% financing or a 40-year amortization it might therefore be wise to find a mortgage soon.
  • An exception to the new rules applies if there is a binding agreement for purchase and sale, financing or refinancing entered into before October 15, 2008.  If the financing agreement entered into before October 15th is binding, then the new measures will not apply.  This is true even if the funds are not advanced (e.g., the house sale does not close) until after the October 15th cutoff.
  • The new stated minimum Beacon score for an insured mortgage is 620. The new maximum TDS (total debt service) ratio is 45%.  In the past, lenders and mortgage insurers have set their own lending and
    underwriting standards.  This will continue going forward but the above guidelines are now required for mortgages to
    qualify for government-backed insurance.

Of course, we can thank our southern neighbours for these new limits.  Canada’s underwriting standards have generally been very prudent, and much more conservative than in the U.S.  Despite this, Finance Minister Jim Flaherty has said, “We’ve seen an inclination now, a trend, toward longer-term
amortizations and smaller down payments, and that is a matter of some
concern." 

The Finance Department and Bank of Canada have been similarly concerned for a while now.  In fact, sources tell us they have been considering more restrictive underwriting measures for several months.