CMHC tightens Mortgage Lending Rules and Increases Mortgage Insurance Premiums

Pdf link for the full article

Last month CMHC announced it is going to increase mortgage default insurance premium effective June 1st of this year. CMHC also announced a few changes to the mortgage lending rules for both high ratio (high risk) and low ratio (conventional) mortgages.

What does this basically mean for Buyers? The new changes means four things for the Buyers:

1) Insurance Premium: If you have 10% or less for down payments your CMHC default insurance premiums will go up from 2.75% to 3.45%. This would make a big difference in your mortgage payments as well as how much you will qualify for

2) New Qualifying Rate: Previously only high ratio mortgages (people with down payments less than 20%) were qualified at the Benchmark rate. Low ratio mortgage was qualified at the lender-discounted rate. Now it is the same for terms less than five years. Regardless of variable or fixed, high ratio, or not, all mortgages less than five years will be qualified at the benchmark rate.

3) Cash Back Mortgages: Now the client may get one only if they don’t need one. Yes I said it and it is odd…lol…now clients can only get cash back if they can first come up with the full down payment from traditional sources. So basically they first have to get qualified without the cash back. Don't forget lenders charge a higher rate for cash back so I don’t think many clients will go for it except for those clients doing it only if they are using the cash back money to pay off higher interest debts.

4) Employment Income Verification: There is now going to be more scrutiny of borrowers income and employment verification. It is no longer optional for lenders to only ask for pay stubs or T-4’s. All lenders now have to call the employer to verify borrowers income, position and tenure of employment.

Click on the link attached above to read the full article. Please call me or send me an email if you want to determine who is impacted and how big of an impact it will really have on the real estate market.