How This New Mortgage Rule Could Affect You
As of July 1st, CMHC is tightening its guidelines for high-ratio/insured mortgages, to reduce demand and stabilize housing markets. It’s also a direct response to the high number of mortgage deferrals after the COVID-19 pandemic. Read on to learn more.
Firstly, the CMHC plans to reduce qualifying ratios. The old rules allowed borrowers to spend up to 39% of their gross income on housing, and up to 44% of gross income after factoring in unsecured debt. The new rules will reduce these debt servicing ratios to 35%/42%, respectively.
Secondly, a new minimum credit score is getting introduced. While the old rules stipulated a minimum credit score of 600, the new rules have increased the minimum beacon to 680 points.
Finally, home seekers will no longer be able to borrow down payments. Under previous guidelines, borrowers were allowed to use credit cards, unsecured lines of credits, and personal loans to make the minimum down payment.
However, under the new rules, borrowers must come up with a down payment from their resources. These resources can include equity from the sale of a home, a non-repayable gift from an immediate family member, or personal savings and investments.
While the new rules will make it more challenging to qualify for a CMHC insured mortgage, there are other options available. Most borrowers can avoid being impacted by the new regulations, by approaching two alternate mortgage insurers in Canada, namely Genworth and Canada Guaranty.
Neither of these insurers has adopted the new tightened guidelines. So, for borrowers who do not meet CMHC’s new rules, they can rest assured that there are other insurers to obtain their default mortgage insurance through.
If you’re planning to purchase a home with less than a twenty percent down payment, it’s best to contact a mortgage broker for further information.
With over ten years of experience, Mortgages By Erin will help you with all your mortgage needs. Over the years, I have helped hundreds of home seekers realize their real estate dreams.
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