It has been 2 months or so since the new CMHC rules came into effect. Many are realizing what we have been saying, they have not made that much of a difference, especially to those that are looking to buy. Here are the latest changes and the impact they have had.
1. GDS/TDS maximum of 39/44% - This pertains to what percentage of a borrower(s) income can be used to qualify for a mortgage. This rule was always in effect. The insurers were continually making exceptions and approving deals beyond these ratios. All they are doing now is saying no more exception. This rule change affects very few people. Personally, this rule has not resulted in any of my clients not being approved.
2. Maximum Amortization 25 years. – This rule has had a small effect on mortgage clients. But when you look at the difference in payments and the amount you save in the long run, this is a rule that benefits the borrower in the long run. On a $200,000 mortgage the payment difference is less than $100 per month. But on a 5 year term your ending balance is approximately $7,000 lower. Small pain for a large gain.
3. Maximum Purchase price – Anyone buying a property for $1Million+ must put a minimum of 20% down. In the past, it was rare for client to buy high priced homes and put little down – the premiums were way too high. Let’s face it, if you are buying homes valued over $1Million, you should be putting at least 20% down. It just makes sense.
4. Maximum 80% refinance. – This rule will have the biggest impact on borrowers. In the past you used to be able to take out up to 85% of the equity in your home, now that is reduced to 80%. This means that on a home valued at $400,000, you can take out $20,000 less in the equity. The benefit is that it should deter home owners from leveraging their biggest investment and force them to increase the equity in their homes. The downfall is that if homeowners absolutely need to borrower money and there isn’t enough equity in their homes, they will be forced to borrower unsecured at much higher rates. The interesting point about this ruIe change is that you can buy a home with no money down, but once you own the home, you can’t borrow against it. is this really helping the home owner? Time will tell