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Mortgage Rule Changes Announced to Affect Canada's Housing Market?

Created: 06 September 2012
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Summary: Jared Dreyer, President, Mortgage Brokers Association of BC (MBABC) highlights mortgage rule changes in Canada.

VANCOUVER, BC, June 22, 2012 -- The mortgage industry was caught off guard by government changes that are swiftly coming into effect July 9th, 2012. These changes however will ONLY affect purchasers who plan on putting less than 20% down payment on properties and are intended to support the long-term stability of Canada's housing market overall.

Four measures were announced by Finance Minister Jim Flaherty who outlined these new rules impacting CMHC, Genworth and Canadian Guaranty, Canada's high ratio mortgage insurers.

“These changes speak to ensuring that we have strong first-time homebuyers who are building equity in their properties, that we soften debt exposure for Canadians and that we limit the loan to value ratios on higher priced real estate”, says Dreyer. “That being said, by reducing the amortization of high ratio insured mortgages to 25 years, Canadians, in, for example, the Saskatchewan and New Brunswick markets who are trying to do the right thing by entering the housing market, are now facing a greater uphill battle.”

Other markets such as Toronto and Vancouver may experience an adjustment given the affordability of these markets. Dreyer comments, “The cost is greater for insurance on larger mortgages and in some circumstances it may make more sense to find another way to achieve the 20% down payment or to consider lowering the purchase price to avoid paying this insurance premium”.

It is important to understand again that these current changes will NOT affect consumers providing a down payment of 20% or more.


1. Amortizations reduced to 25 years from 30 years (on properties with less than 20% down payment)

A mortgage of $250,000 with a current 30 year amortization at 3.09% 5-year fixed rate = $1094.89 monthly payment
A mortgage of $250,000 with the new 25 year amortization at 3.09% 5-year fixed rate = $1227.54 monthly payment
Difference of $132.65 per month

2. Refinancing is REDUCED from 85% Loan-to-Value (LTV) to 80% - no change to purchases. (It is important to note that most consumers currently choose to refinance to a maximum of 80% LTV to avoid insurance fees so this specific change should have very little impact).

3. Properties purchased over $1 Million will no longer be eligible for mortgage insurance. (If the home purchase price is under $1 Million dollars, consumers can still purchase up to 95% LTV with insurance - anything over $1 Million dollars, 20% down payment is required).

4. Gross debt service ratio (a lender’s formula for determining a borrower’s ability to make mortgage payments in relation to income) have now increased, which could affect some consumers ability to qualify for a mortgage.


The 5% down payment rule still remains in effect for property values under $1 million dollars.

These changes are an indication that interest rates should continue to remain low for some time. Interestingly, Ben Bernanke of the US Federal Reserve indicated a few days ago that the US may reduce interest rates further.


These changes will not affect mortgages already in place or approvals already issued by the lender. It will however, affect pre-approvals for purchases with less than 20% down with a 30-year amortization. The client will now need to re-qualify at the 25-year amortization.

As the mortgage qualification landscape becomes more complicated, it is critical consumers work with a mortgage professional that understand these changes and can help navigate the rules to ensure the best mortgage solution.

*For sample purposes only. Rates are subject to change. On approved credit.