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NEW REQUIREMENTS FOR INSURED MORTGAGE QUALIFICATION

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On December 11, 2015, new Finance Minister Bill Morneau announced new down payment rules for insured mortgages, set to take effect on February 15, 2016. From then on, a 5% down payment will be required on the first $500,000, and 10% down will be required on the next $500,000. Borrowers who qualify before February 15, may still be able to make only a 5% down payment. First time buyers will often be spared the additional down payment as they typically buy properties below the $500,000.00 threshold.

Since 2008, the Federal Government has made several changes to the rules for mortgages insured through CMHC and other private insurance providers. Mortgage insurance is required when borrowers make a down payment of less than 20% of the property value. Insurance is not available where the purchase price is greater than $ 1 million.

The changes include the following:

• The maximum amortization period has been reduced to 25 years from 40 years.

• Home buyers must have a down payment of at least five per cent of the home purchase price and starting February 15, 2016, home buyers must add a further 10 per cent to their down payment for the portion of the house price between $500,000 and $999,999. For non-owner occupied properties, a minimum down payment of at least 20 per cent is mandatory.

• Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.

Changes to Canada’s Mortgage Market

The result of the new rules for larger down payments and shorter amortization periods, means that some people may not qualify for a mortgage when they would have been able to before February 15th.

Please contact us or your lender/broker if you have questions about these new rules