New Mortgage Rules are in place to cool down the housing market. It’s now more restrictive for some borrowers to obtain financing. In a nutshell, here are the 4 points you need to know:
- Single Family Loans. A Federally regulated mortgage lender cannot make a loan on a residence if the LTV exceeds 80%, unless the loan is insured. What’s changed? For a loan to be insured, the borrower must now qualify at the greater of the contract rate or the Bank of Canada (BoC) posted 5 year mortgage rate. Classic stress testing!
- Portfolio Insurance. Lenders often bulk insure portfolios of loans to enable them to qualify for sale to a securitization program. What’s changed? New rules mandate:
- -max amortization period 25 years
- -max purchase price < $1 Million
- -min borrower credit score 600
- -property must be owner occupied
- -variable rate loans need be re-calculated every 5 years so payment corresponds to original amort. period
- -GDS & TDS ratios of not more than 39% & 44% respectively, at higher of Contract or BoC posted 5 yr. rate
3. Risk Sharing. The Feds plan to enter into discussions with lenders in respect of risk sharing. Stay tuned.
4. Foreign Buyers. The Feds intend to address what may be a misuse of the principal residence exemption by certain buyers. The new rules require the individual to be a Canadian resident in the year the house was acquired, in order to claim the exemption.