Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Canada Mortgage and Housing Corporation announced that it is bringing in two changes in its mortgage insurance business. The Crown Corporation has been struggling in many fronts. While it is not exactly in a financial trouble but it has drawn critics from many areas. Some of them have tried to tie it with the house price bubble.

It has been – since then – trying to streamline its business and manage tax-payers risk exposure to the housing market. Slowly but steadily it has been changing its mortgage insurance policies. Last month it ended insuring stated income borrowers. It also brought in many changes last year. Cohorted by our late finance minister Jim Flaherty. The recent changes proves that it is seriously and continually reviewing its policies.

CMHC introduced the following two mortgage insurance policy changes in its ongoing effort to reduce risk from the overheated housing market.

  • CMHC mortgage loan insurance for the financing of multi-unit condominium construction will be discontinued effective immediately. CMHC’s mortgage loan insurance for the homebuyers wishing to purchase a condominium is unaffected by this change; and
  • CMHC will align its low-ratio transactional mortgage loan insurance product with its high-ratio product by establishing maximum house prices, amortization periods and debt servicing ratios effective July 31st.

Condo Development mortgage insurance stops.

If you’re a condo buyer then you do not really have anything to worry about. If you’re a condo developer then according to CMHC there have been zero issuance of this type of insurance since 2011. So the market pretty much takes care of the funding requirement of the developers and builders.

No more than 25 years for low ratio mortgages.

Till July 31 – if you are a homebuyer with more than 20% down payment – you can opt for higher than 25 years amortization period. But after July 31, 2014 you would not be able to get an insured mortgage (insured by CMHC) if your amortization is higher than 25 years. Sometimes, the lender will pay the insurance premium so they securitize the mortgage easily. Now, that avenue is closed.

Limits GDS and TDS.

Another park of paying 20% down payment was the ability to qualify for a loan with higher debt service ratio. From August 1, 2014 that service ratio for conventional mortgage (insured) or low ratio mortgage will be 39% for Gross Debt Service (GDS) and 44% for Total Debt Service (TDS). Obviously this is applicable for insured mortgage.

Caps maximum price.

Insured conventional mortgage applicants were able to request more than $1 million property. Now it is being capped at $1 million.

All these changes have no direct effect on the regular borrowers. But CMAC expects or hopes that these measures will help to curb soaring house prices.