The Canadian Housing Mortgage Corporation (CMHC) the largest mortgage insurance provider in Canada is making changes to their qualification rules. As of July 1, 2020 all high ratio mortgage applications or those with less than 20% down will have to comply to tighter qualification rules.
CMHC is noting that this change is as a result of the global pandemic and a means to reducing household debt and ensuring Canadians are not over extending themselves.
New Mortgage Rules:
- Gross Debt Ratio (GDS) will be reduced from 39% to 35%
- Total Debt Ratio (TDS) will be reduced from 44% to 42%
- Minimum Credit Limit will be increased from 600 to 680
- No longer accepting down payments that increase indebtedness (personal loans/family loans)
It’s important to understand the difference between the two calculations as you need to be below both calculations in order to purchase a home.
- GDS is the percentage of your monthly household income that covers your housing costs. It must not exceed 35%. Total household costs includes mortgage principal + mortgage interest, taxes & heat.
- TDS is the percentage of your monthly household income that covers your housing costs and any other debts. It must not exceed 42%. Other debts includes everything from credit card debts, lines of credit, personal loans or car loans, etc
CMHC is only one of Canada’s mortgage insurers. There are two private-sector options; Genworth Financial and Canada Guaranty Mortgage Insurance Co. Both have confirmed that they will not follow suit, noting that they feel the rules in place already protect Canadians. So if you are a purchaser already feeling the pinch – don’t fret yet. In the past when mortgage rule changes have been announced it has caused an increase of activity before the rules took effect. With everything that is happening already in our economy plus the one off approach that CMHC is having, activity here in Kamloops will remain relatively on track as the previous 30 days.
I think this time it’ll be a little bit less of a frenzy,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX of Ontario-Atlantic Canada. “Typically, when CMHC changes their requirements, the other insurers follow suit. This time they didn’t, so I think this is going to create better balance heading into the summer.
In my experience, the reduced calculation won’t put a damper on our market. The majority of the time when working with Buyers, the maximum mortgage amount that was calculated wasn’t a monetary figure that the purchaser was comfortable spending. So while the calculations are in place to protect Canadians – if you’re ready to purchase a home you likely have a figure in mind that you are comfortable with… and often it’s less than what you can qualify for in the first place.
If you have more questions about the new rules and how it may affect your purchasing file, please contact your mortgage broker at the earliest possibility to discuss.
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