Since 2008, the federal government has made several changes to the rules for mortgages insured through the Canada Mortgage and Housing Corporation (CMHC) and other private sector mortgage insurance providers. These rules affect home buyers with less than a 20 per cent down payment, which include many first-time home buyers in Canada.
The changes include the following:
The maximum amortization period has been reduced to 25 years from 40 years.
Home buyers must have a down payment of at least five per cent of the home purchase price and starting February 15, 2016, home buyers must add a further 10 per cent to their down payment for the portion of the house price between $500,000 and $999,999. For non-owner occupied properties, a minimum down payment of at least 20 per cent is mandatory.
Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.
Limiting the maximum gross debt service (GDS) ratio to 39 per cent and the maximum total debt service (TDS) ratio to 44 per cent.
These two important ratios are used when calculating a person’s ability to pay down debt. GDS is the share of a borrower’s gross household income needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. TDS is the share of a borrower’s gross income needed to pay for all debts, including those relating to home ownership.
Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. Borrowers buying homes at or above this amount will need a down payment of at least 20 per cent if their financing is from a federally-regulated financial institution.