The Canadian Federal Government recently announced Mortgage Insurance and Qualification Changes effective October 17 and November 30, 2016. These changes are intended to slow down the red-hot housing market but will make it more difficult for first-time buyers and borrowers with marginal income to qualify for financing. They will also close some loopholes currently being used by foreign investors. The details of the announcement are summarized below, courtesy of Mortgage Professionals Canada, Canada’s national mortgage broker industry association.
- All insured mortgages will now need to qualify at the Bank of Canada benchmark rate (4.64%) instead of the contract rate offered on their commitment. This change is scheduled to come into effect on October 17, 2016.
- Portfolio (‘bulk’) insurance must now meet the same criteria as those that are high ratio insured. This change is scheduled to come into effect on November 30. This means that amortizations greater than 25 years, rental and investment properties and homes with values greater than $1M can no longer be portfolio-insured.
- Capital gains exemptions on principal residences will apply only to residents of Canada.
- In addition, there is further discussion about ‘sharing in risk’ that is currently borne in large part by the three mortgage insurers. While high ratio customers and portfolio insurance funders pay for this risk, there is discussion about sharing in the cost of losses beyond just the mortgage insurers. This in and of itself could have significant implications. We will continue to monitor any discussion around this as well.
Click here to read more about Finance Minister Bill Morneau’s announcement in the press.