No one has a crystal ball to see what the next few months, or years, will bring, but it’s likely that some homeowners in Brampton and the GTA will have trouble with their debt in the wake of the coronavirus pandemic. Given this assumption, the Canadian Mortgage and Housing Corporation (CMHC) recently announced that it is tightening the rules for Canadian homebuyers that need an insured mortgage. Homebuyers with less than 20% down are required to have mortgage default insurance, which is an important protection for Canadian lenders.
Here is summary of the new CMHC rules that are effective July 1:
- Reduced buying power. CMHC had allowed 44% of total income to service all debt and up to 39% of total monthly income to service housing payments (principal, interest, taxes, heat, 50% of condo fees). This has been tightened to 42% of total income can now go to service all debt, and 35% of total monthly income to service housing costs. This reduces a homebuyer’s purchasing power from 9 to 11%. As an example, someone qualifying for a $500,000 home or condo, will see that decrease to about $445,000.
- Higher minimum credit score required. At least one applicant’s credit score must now be a minimum of 680, which is up from 600. You can get your own score for free through Equifax or TransUnion.
- Borrowed down payment sources can no longer be used i.e. from a line of credit. I have found that very few buyers used this option so this will have a minimal impact.
I have options for you. No need to panic!
One of my competitive advantages is that I work with over fifty lenders and deal with private mortgage insurers – Genworth Canada and Canada Guaranty, which are an excellent alternative to CMHC. Both insurers announced that their underwriting guidelines are not changing in lock step with CMHC, which means I expect to be using these insurers for many of the new homebuyers that I’ll be working with in the coming months. Great news and why there is no need to panic over the new CMHC rules. I’ve got you covered!
Here to help
If you are finding the mortgage marketplace confusing, don’t worry. That’s why I’m here. My only focus is mortgages and I am always up to date on the changing mortgage marketplace. If you or someone you know in Brampton or the GTA is looking to buy, it’s important that we touch base early so we can put a solid plan in place.
If you have concerns about your current mortgage strategy, it’s also important to get in touch as soon as possible, especially if you want to determine if you can renegotiate your mortgage to take advantage of today’s low rates, or refinance to consolidate troubling high-interest debt into a new, low-rate mortgage.
