What do rental property owners need to know about the recent changes? As of April 19, borrowers applying for a variable-rate mortgage or a fixed-rate mortgage with a term of less than 5 years must qualify based on the Bank of Canada’s five-year fixed posted mortgage rate. Note that 5 year terms can be qualified at the contract rate, or at the Lenders discounted rate as it is often called.
• A minimum down payment of 20 per cent will be needed for government-backed mortgage insurance on non-owner-occupied properties such as rental properties.
• What about the self-employed? There are also changes in how much of rental income can be used when qualifying for financing – CMHC and Genworth have indicated that now 50 per cent of the rental income will be added to the borrower’s income, down from 80 per cent rental offset from the payment that will be used when calculating the borrower’s TDS.
• CMHC has stated that as of April 9, self-employed individuals who are applying for a stated-income mortgage will now have to put down at least 10 per cent, up from 5 per cent today.
•CMHC has also tightened some of the rules around who can qualify for their stated income self employed product. Borrowers that have been self employed for more than 3 years will now have to qualify based on income declared to CRA and will have to provide adequate income confirmation. The same applies for those earning income through commissions. CMHC’s stated income self employed product is now aimed more at those who have recently become self employed and have difficulty providing documentation.
If you have any questions please do not hesitate to give me a call.