This will be a big surprise to many. The Department of Finance has just announced that it will no longer back the following:
- 100% financing (5% will now be the minimum downpayment on an insured mortgage)
- 40 year amortizations (35 years will be the new maximum on insured mortgages)
The government will also require the following with all new mortgages it backs:
- A new 620 minimum credit score requirement
- 45% maximum TDS (Total Debt Service) ratio
- New loan documentation standards
The new rules will take effect October 15, 2008. This affects CMHC insured mortgages as well as mortgages insured by Genworth, AIG, etc. Insured mortgages are generally those with less than 20% down. Certain conventional mortgages are also insured, however.
In a statement earlier today, the Department of Finance said, "Today's announcement marks a responsible and measured approach by the Government to ensure Canada's housing market remains strong and to reduce the risk of a U.S.-style housing bubble developing in Canada."
These new rules pertain only to new, government-backed insured mortgages. This will not affect existing mortgages.
An interesting decision since a recent Statistics Canada report concluded that home ownership is at record levels, with over two-thirds of Canadians owning their own home.
Mortgage arrears-overdue mortgage payments-have also remained low. In recent years, the percentage of mortgages in arrears for three months or more continues to be at low levels not seen since 1990.
However, if you have clients that may not have 5% down and wish to buy a home, now is a good time to start shopping! Just a reminder that 100% also applies to single and duplex rentals.