mortgage-regulationsEffective today, mortgage shoppers with less than 20% equity are subject to the new mortgage rules announced recently by the government.

These regulations will cut buying power and refinance ability for a minority of Canadians.

If these changes shut you out of the market, and if renting is not appealing, you don’t have a ton of options.

One alternative is to buy with a strong co-borrower. Another is to get an uninsured mortgage. But the downsides of those are higher rates and limited loan-to-values (Uninsured lenders typically don’t allow LTVs above 85%).

For those of you with mortgages already, these regs will end up pinching a few of you who renew or refinance. Here’s our story from today’s Globe and Mail on that:  New mortgage rules could make switching or refinancing tougher.

And in related news, BMO released poll results this morning suggesting nearly half of Canadians are “unfamiliar” with these new rules. We’d submit that a majority still don’t understand the potential ramifications on the real estate market.

amortizationOnly 45% of those surveyed knew that the maximum amortization on insured mortgages is now 25 years.

Some other findings from the BMO poll:

  • 14% of prospective home buyers say the government’s changes reduce the chances they will buy a new home in the next five years.
  • 41% of those still planning to buy in the next five years say these changes increase the odds that they’ll spend less on a home than they otherwise would have.
  • 45% say this makes it more likely they’ll take out a smaller mortgage.

Borrowers also have OSFI’s new underwriting guidelines to deal with. This additional set of mortgage restrictions will take effect in the coming months (by October 31, 2012 at the latest in most cases).


A Related story:  20 Observations on the New Mortgage Rules


Survey Info: BMO’s survey was conducted online between June 29 and July 4, 2012 with a random sample of 1,000 Canadians 18 years and older. A probability sample of this size would yield results accurate to +/- 3.1 per cent, 19 times out of 20.


Rob McLister, CMT

  1. > you don’t have a ton of options
    Other options include:
    1. Actually saving for a larger deposit.
    2. Changing your opinion on renting. One big advantage of renting now is that it provides a safe place to ride out the coming fall in real estate prices.
    Challenging your view of why renting is

  2. Totally agree with wjk. If someone can’t save more than 5% downpayment, then they can’t afford home ownership. This is especially true in cities where renting is cheaper than owning, like Vancouver (my rent is 1/2 of my landlord’s mortgage payment).


  3. 14% of prospective home buyers say the government’s changes reduce the chances they will buy a new home in the next five years.
    41% of those still planning to buy in the next five years say these changes increase the odds that they’ll spend less on a home than they otherwise would have.
    45% say this makes it more likely they’ll take out a smaller mortgage.

    So collectively that means lower demand and purchasing power for a segment of population (and of course HAM isn’t a part of it!). With supply also at recent decade highs as judged from the number of listings, the logical conclusion should be clear.

  4. You must be in the one-half of Canadians who still don’t understand the rules.
    A larger deposit/down payment only relates to the ban on insuring homes over $1 million. That rule doesn’t affect most people.
    The rule that hits people the most is the amortization change. That pertains to debt servicing, not down payment.

  5. “If these changes shut you out of the market, and if renting is not appealing, you don’t have a ton of options.”
    If these changes shut you out of the market, you probably should not have been “in the market”… economists have commented that the changes equate to approximately a 1% raise in rates. If a 1% change in rates “shuts you out”, that is scary.

  6. Absolutely agree. The only question is what happens if you can’t afford to rent? Renters typically spend more on shelter costs as a percentage of income than home owners. I guess there’s always the bus shelter.
    I think that’s how the French revolution started.

  7. Hi Stats,
    For the most part I’d agree. Although, with 9.6 million mortgagors in Canada and infinite circumstances, there are always exceptions.
    As a side note, the amortization reduction is almost like a 1% rate increase. The new amortization and GDS limits combined are closer to a 2% rate increase (in terms of one’s maximum theoretical mortgage amount). Of course, this applies only to a minority of Canadians affected by these constraints.
    Cheers…

  8. Hi Rob,
    How will my scenario pan out with renewal next may:
    Total income: 130000
    2 houses worth 1.4 mil
    2 mort. 950000
    1 house rental. Rent covers mortg etc.
    Curently prime-.75 and prime-.6

  9. Hi rensuite,
    Thanks for the post. Your question hinges on many considerations. The best bet is to speak with a knowledgeable adviser who can ask you the right questions and provide immediate advice.
    Here’s a list of mortgage planners that you can search by area, or feel free to email us directly if we can be of further help.
    Cheers…

  10. Renters typically spend more on shelter costs as a percentage of income than home owners.
    That’s because overall incomes for renters are much lower (obviously, since almost everyone starts off renting). It says nothing about rents being high.

  11. “Renters typically spend more on shelter costs as a percentage of income than home owners. I guess there’s always the bus shelter.”
    With utmost respect, I doubt this is the case. The only reason I can see that it might be true could be because people who have very low incomes may rent more often than those with higher incomes skewing the numbers. But on an apples to apples comparison it’s WAY cheaper to rent the same unit (in Toronto) than it is to buy it.
    Do you have a source for this statement?

  12. … Or you could contact Rob who graciously hosts this site and send some business his way. :)
    Rob thank you for the time and effort you put into this site and for being a gracious and open host.

  13. The statements that if you can’t save for a downpayment more than 5% than you can’t afford home ownership is outlandish.

  14. Outlandish? How so?
    A down payment reprsents many things, a good faith deposit for the lender, a demonstated ability for financial disipline,(hopefully you have saved an emergency fund too!) and having some equity or “stake” in the loan.(so you are less likely to walk away)
    I think 10% should the minimum, I plan on 20% when i am ready to buy to avoid CMHC, but ask any of my other 20-30 something friends, and they say there is no way. All they look at is the montly payment.

  15. “But on an apples to apples comparison it’s WAY cheaper to rent the same unit (in Toronto) than it is to buy it.”
    Not necessarily. It depends on what you’re comparing.
    Ownership of a new condo compared to renting an old-build apartment – renting is cheaper, significantly.
    Ownership of a new condo compared to renting a similar new condo – renting is usually cheaper, but not always.
    Ownership of a house to renting a house – renting is often more expensive.

  16. I tend to agree with Marie, I always told myself I would wait for 20% down but found myself caught in the boom and pulled the trigger on my first home with 5% down which turned out to be the biggest mistake (my broker didn’t clearly explain all the factors). After CMHC basically takes that equity right off the top anyhow it may as well have been 0% down, in turn destroying your equity and thus increasing the risk for default.
    I would have rather seen the new rules keep the 30yr ams but increase minimum down payment to 8 or 10%. It would probably have the same net effect on purchasing power.
    If you can save that much in this economy I’d say your inherently more responsible than the average first time buyer, living within your means, and we would be putting less risk into the mortgage market. Plus you would still have the flexibility to drop any accelerated payments if your income gets cut or rates spike beyond your budget.

  17. All I have heard simply tells me that the intended impact is exactly what it should be, with a Bank of Canada that had its hand tied (to increase rates). In my simple mind this represents a good dampening of that bubble concern.

  18. Tired is right. Critics who make blanket statements and allow for no exceptions are ridiculous.
    Get real people. Not everyone will fit your definition of “qualified.” There are always common sense exceptions in mortgage lending.
    Implying that people with small down payments are always risky is just ignorant. Maybe that individual has used their down payment money for other investments, or to pay off high interest debt. Maybe they just got out of medical or law school. Maybe they have other sources of cash for emergencies like roof repairs and such.
    Don’t be so pig headed to think your way is the best way for everyone. Someone could put down 5% but be way less risky to a lender than you and your 20%.

  19. It is important to also note that while renting may be cheaper in many cases, it is money that you will never get back. While home ownership does not guarantee that you will receive all of your money put into the home, you will at least build equity as your mortgage decreases as well as with home appreciation.

  20. The key comparison is between rent and the non-value-added portions of the home-ownership cost (mortgage interest and taxes), which is also money that you will never get back.

  21. Implying that people with small down payments are always risky is just ignorant.
    Not always risky, but I believe Rob (our host) has explained in the past that all else being equal, buyers with small down-payments are a greater default risk than buyers with large down-payments.

  22. If owning costs twice monthly what renting does, then you can also “build equity” in an investment account. One that you can diversify and liquidate whenever you like.
    Until it is paid off you are still a renter, of money, but with all the liabilities on your shoulders for the capital upkeep.

  23. If “they” have high interest debt perhaps “they” should not buy a house with 5% down…sight

  24. What if they have 5% down but $100,000 of assets invested elsewhere?
    What if they are a new dentist or doctor making $120k a year?
    There are so many what ifs. You can’t generalize about who deserves to be a homeowner and who doesn’t.

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