New CMHC Mortgage Rules
The new CMHC mortgage rules (Canadian Mortgage and Housing Corp.) will take effect July 9, 2014. Essentially these are restrictions and increases on mortgage insurance premiums. The purpose of this is to make sure we don’t end up in a financial fiasco like the US did in 2008. CMHC insures outstanding and high ratio mortgages in case they default, they are the largest of three main firms who provide mortgage insurance. CMHC is also the only federally backed institution. By implementing the new CMHC mortgage rules, the government is attempting to make sure that only viable individuals who can actually afford the purchase are able to take out a second mortgage.
In plain terms, this will mainly affect investors who have been able to take advantage of high ratio mortgages up until now. If you are a property owner and wish to purchase a second property, you now need to have at least 20% down payment as this would not place you within the high ratio segment with regards to the new CMHC mortgage rules. It’s not a drastic change like the amortization restrictions which were implemented a few years ago, but it does place some restrictions on the growing number of real estate speculators. Since CMHC will not be issuing mortgage insurance for second properties without at least 20% down, the investors who wish to push ahead will need to go through a private company like Genworth Canada or Canada Guaranty.
A more substantial issue is the new CMHC mortgage rules regarding self employed individuals. If you are self employed or run a business, you cannot get insured for a second mortgage by CMHC after July 9th. In this case you’ll need to either have third party income (salary based job) or a co-signer such as a salary based spouse.
The new CMHC mortgage rules are part of an effort by the crown corporation to offload risk to private sectors. In 2012 their insurance portfolio stood at around $566 billion, $557 billion in 2013 and this year it is expected to drop to $545 billion. Most high leverage mortgages will now be insured by private sector insurance providers as opposed to the tax backed CMHC, which is a good move overall.
It is always recommended to get detailed information from a mortgage professional. Further details regarding thes new CMHC mortgage rules can be provided by our in-house mortgage brokers. If you’re thinking about buying or selling your property or want to be placed in contact with a trusted mortgage broker, feel free to contact me, Ivan Ciraj.