In effect July 9, 2012 -
Limit the Maximum Amortization Period to 25 Years
Lower the Maximum Refinancing Amount to 80 Per Cent of the Loan-to-Value Ratio
Limit the Gross Debt Service Ratio to 39 Per Cent and Total Debt Service Ratio to 44 Per Cent
Good news, the minimum down payment stays at 5% for single family or duplex, owner occupied property,
Mortgage insurance (which is sometimes called mortgage default insurance) is a credit risk management tool that protects lenders from losses on mortgage loans. If a borrower defaults on a mortgage, and the proceeds from the foreclosure of the property are insufficient to cover the resulting loss, the lender submits a claim to the mortgage insurer to recover its losses.
The law requires federally regulated lenders to obtain mortgage insurance on loans in which the homebuyer has made a down payment of less than 20 per cent of the purchase price (also called high loan-to-value mortgages). The homebuyer pays the premiums for this insurance, which protects the lender if the homebuyer defaults.
The Government backs insured residential mortgages in Canada. It is responsible for the obligations of Canada Mortgage and Housing Corporation (CMHC) as it is an agent Crown corporation. In order for private mortgage insurers to compete with CMHC, the Government backs private mortgage insurers’ obligations to lenders, subject to a deductible equal to 10 per cent of the original principal amount of the loan.
Since 2008, the Government has taken measured steps to strengthen the minimum standards for government-backed insured mortgages, including:
- Requiring a minimum down payment of five per cent for owner-occupied properties and 20 per cent for speculative properties.
- Limiting the maximum amortization period to 30 years.
- Lowering the maximum amount Canadians can withdraw in refinancing to 85 per cent of the value of their homes.
- Requiring that borrowers meet the standards for a five-year fixed-rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.
- Withdrawing Government insurance backing on lines of credit secured by homes.
These standards apply for mortgages on residential property with four units or less. They do not affect multi-unit buildings with five units or more.