New CMHC Rules in Effect

New Mortgage Financing Rules
 
On February 16, 2010, the Government of Canada announced a series of regulatory changes to support the long-term stability of Canada's housing market. The Government has now provided the following details in relation to these changes. The three key changes associated with this announcement are:
 
1. Borrowers will need to be able to afford a five-year fixed rate mortgage, even if they choose a mortgage with a shorter duration.
 
2. Investors, who want to buy a home that they don't plan to live in (a rental property), will have to make a minimum down payment of 20%.
 
3. Canadian home owners will only be able to withdraw 90% of the value of their homes in a refinancing, down from 95%
 
Effective April 19, Qualifying Interest Rate guidelines will change as follows:
 
Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages:
Applications will be qualified based on the greater of the 5 Year Bank of Canada Benchmark Rate, or the actual customer rate (inclusive of any customer discretion).
 
Fixed Rate Mortgages of terms 5 years or greater: Applications will be qualified based on the actual customer rate (i.e. the discounted rate).
 

Other rules recently changed affect self-employed clients as follows:
(I think this is where a lot of people are getting confused on the minimum down payment issue changing from 5 to 10%. It only effects the BFS (business for self or alt A programs).

Maximum financing for purchase is 90% ( from 95%).

Maximum refinance is up to 85% LVR
****If self-employed and qualify for mortgage financing based on NET income, clients may still purchase a home with 5% down payment and refinance their home up to 90%.
 
April 19th, 2010
 

What happens to a pre-approval after April 19th? Suppose a client gets pre-approved before April 19 and is putting down less than 20%. What happens if no purchase agreement is signed until, on or after, April 19? Which qualifying rate will the lender use to determine if clients can afford the mortgage? CMHC has provided this clarification:
 
Pre-approval does not count as a financing agreement as it doesn't represent a binding agreement to advance funds. So even if the borrower gets pre-approved before April 19, given that he/she would sign the purchase agreement after the cut-off date, the new rules would apply. If  getting pre-approved and debt ratios are near the limits, it could mean that:
 
a) The higher qualifying rate after April 19 might reduce the mortgage amount to qualify for (assuming no purchase agreement has been signed  before then); and,
 
b) You might potentially qualify for only a 5-year fixed term. The government's new posted qualifying rate does not apply if clients are putting down 20% or more. However some of the  lenders are choosing to apply the new rules regardless of the loan-to-value.