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.

  1. Wait now, I’m not one to follow politics too much, but isn’t Flaherty the one that introduced the 40 year AM and 0% mortgages just a couple years back?

  2. CIBC and BMO just pulled out of 40 year mortgages as well. Have they really thought about the potential risk to tightening lending standards at this point in the real estate cycle? With less real estate demand and less supply of money for real estate this will have a negative impact on prices in Canada. Particularly, the overheated West. This should have been looked at a LONG time ago. There is record amounts of MFH construction coming online which will be mismatched with demand due to changing credit situation. The impact will be much worse on the housing market had they never introduced it.
    Just to review:
    * February 2006: CMHC to insure 30 year mortgages on a pilot basis
    * June 2006: CMHC introduces 35 year mortgage and interest-only mortgage insurance
    * December 2006: CMHC introduces insurance for 40 year mortgages
    * September 2007: CMHC offers insurance for 100% financed investment properties

  3. I was very concerned as a Real Estate Agent and a Canadian in general that our government was starting to follow the Americans (USA) in lending money with essentially no intentions of touching the principle!
    Only after the fact the US economy was collapsing did our government begin to act. I hope this lesson is well learned (do not let people borrow money for things they can not afford) even if the Americans think this is the way to go!!!!!!
    We should never have steered towards those lending practices (especially: June 2006: CMHC introduces 35 year mortgage and interest-only mortgage insurance); disaster waiting to happen!
    Thank you for the info: posted by Roger:
    * February 2006: CMHC to insure 30 year mortgages on a pilot basis
    * June 2006: CMHC introduces 35 year mortgage and interest-only mortgage insurance
    * December 2006: CMHC introduces insurance for 40 year mortgages
    * September 2007: CMHC offers insurance for 100% financed investment properties

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