Mortgage rule changes: CMHC looks to protect economic future

If you've been considering buying a home, the time may be now. 

The Canadian Mortgage and Housing Corporation (CMHC) has announced changes to its coverage criteria for insured mortgages starting July 1, 2020. The changes are likely to make it more difficult for aspiring home buyers with down payments of less than 20%. 

The COVID-19 pandemic has affected all sectors of Canada's economy, including real estate. Job losses, business closures, and a drop in immigration are all adversely affcting Canada's housing markets, and in order to protect future home buyers and reduce risk, CMHC is changing its underwriting policies for insured mortgages. 

At least one applicant’s credit score will need to be 680, up from the previous minimum of 600. To ensure borrowers can keep up with payments, maximum total debt service ratios will be lowered from 44 to 42. The gross debt service ratio drops from 39 to 35.

The CMHC also says “non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.”

In other words, buyers will no longer be able to borrow money for a down payment.

CMHC is also suspending refinancing for multi-unit mortgage insurance unless the money is being used for repairs or reinvestment in housing.

The changes are effective July 1, 2020.

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” said Evan Siddall, CMHC’s President and CEO, in a release.

“These actions will protect home buyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

If you have any questions on how this can affect you, send us a message.