Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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CMHC-BFS-2nd-home-rule-changeOnly a few weeks ago CMHC announced that it will be raising its mortgage insurance premium effective from May 1st 2014. What we did not anticipate that it is considering further restrictions.

It was only a couple of days ago when we have learnt about its further ambitions on reducing Canadian tax payers risk exposure to housing market.

Previously if a home buyer wanted to buy a second home – CMHC used to cover the borrower up to 95% Loan to Value ratio (LTV). From June 2014 onwards CMHC will not offer any such insurance.

Second home mortgage default insurance allowed a borrower to find a co borrower (to qualify for the debt ratio) who is willing to sign the mortgage jointly. With the removal of the second home program by CMHC – if a person who already has an insured mortgage can not share the risk of another mortgage with another borrower because it will then become as another mortgage to him.

So, if you are in the market for a second home and want a good interest rate then be prepared for a higher down payment. If you are looking to get a mortgage with CMHC insurance and need a co-borrower who already has a mortgage then you should move on.

CMHC used to offer 5% down payment for Business for Self (BFS) Stated Income borrowers – that has changed since first quarter of 2010. At 10% minimum down payment – although the insurance premium was expensive compared to traditional borrowers – it was a good product for business owners who wanted to maintain higher liquidity for their businesses.

It was mostly for business people who did not have enough income to show on their NOA line 150 to qualify for the GDS TDS ratios. Stated income clients will not be able to get CMHC insured mortgage loans anymore (May 30 onward). They are all now required to produce NOA or more documents like T1 general and more account statements to qualify for the loan.

Now that stated income door is almost closed with CMHC.

Genworth Alt-A program is also another alternative for Stated Income program but it require minimum 10% down payment.

So, a 3rd Party Income Validation is now mandatory for all mortgage loans insured by CMHC.