A HISTORY OF MORTGAGE RULE CHANGES IN CANADA
With runaway home prices in some Canadian cities, it’s important to look at the mortgage rule changes over the last decade. Most Canadians opt for the 5-year term and only start doing research when their term is up for renewal. The Government has been tinkering with mortgage rules almost annually so let’s examine what’s changed.
With so many changes happening, it’s imperative you consult a competent Mortgage Broker who can explain all of your options.
PRE 2008 GLOBAL FINANCIAL CRISIS
This was truly the most lenient times for mortgage qualifications. It’s hard to believe in today’s landscape but here are some popular options available during this time:
- 100% financing options (Yes, $0 down!)
- 40-year amortizations
- Cashback mortgages (you get cash from the lender after closing in exchange for a higher rate)
- 95% Loan-to-value ratios on refinancing
- 5% down payment on rental properties
- Qualifications for fixed and variable rate mortgages at the discounted contract rate (the rate you pay)
- No limit for your gross debt-service ratios (GDS) if you had strong credit
- Elimination of 100% financing
- A decrease in the maximum amortizations from 40-years to 35-years
- The introduction of minimum credit scores
- Total Debt-Service (TDS) Ratios could be maxed at 45% of gross income
- All variable rate mortgages and fixed terms of 1-4 years had to be qualified using the Bank of Canada posted rate
- The minimum down payment for rental properties moved to 20% from 5%
- New guidelines to calculate rental income, property taxes and heating expenses
- A decrease in the maximum amortizations for conventional mortgages from 35-years to 30-years
- Drop in the maximum loan-to-value on refinancing to 85%
- The elimination of mortgage insurance on secured lines of credit (HELOC’s)
- Maximum amortizations for high-ratio mortgages (less than 20% down) dropped further to 25-years from 30-years
- Drop in the maximum loan-to-value (LTV) on refinancing to 80%
- Tougher guidelines for self-employed borrowers to used stated income products to qualify
- Elimination of equity lending without the income to support the mortgage
- A ban on mortgage insurance (CMHC) on any homes valued over $1M
- The elimination of cash-back mortgages
- Introduced Flex Down Mortgage products (borrowed down payments)
- An increase in default mortgage insurance premiums
Minimum down-payment rules changed to:
- Minimum 5% on the first $500,000
- 10% on amounts between $500,001 – $999,999
- 20% on all amounts over $1M (no mortgage insurance available)
- Exemptions on the Property Transfer Tax for all new builds valued under $750,000
- Introduction of the foreign buyers’ tax at a rate of 15% for all non-residents or Corporations outside of Canada
October 2016 – Stress Testing for High-Ratio Mortgages
- All insured mortgages with less than 20% down, now have to qualify at the Bank of Canada 5-year posted rate
November 2016 – Monoline Lenders
Monoline lenders often offered consumers the best options on rate and terms. They have lower overhead expenses (no brick and mortar locations) and would buy insurance on their mortgage loans to secure their book of business.
- No insurance offered on rental properties or refinance transactions
- must use the Bank of Canada 5-year posted rate to qualify
- maximum amortizations of 25 years
January 2018 – Stress Testing for all Mortgages
- If you put down more than 20%, you know need to qualify at the greater of the Bank of Canada 5-year posted rate or your contract rate (the rate you pay) plus 2%
- Elimination of “bundles mortgages.” A bundled mortgage is pairing a second mortgage with an alternative lender your primary mortgage to circumvent down-payment requirements
What’s Next? More Mortgage Rule Changes?
As you can see, the Mortgage qualification guidelines are dynamic and changing constantly to reflect economic conditions. The Government is concerned with sky-high home prices in some cities (Vancouver & Toronto) and the high debt levels piled on by many Canadians in recent years.
All of these changes should make it clear; using a qualified Mortgage Broker has never been so important. We have up to date industry knowledge, access to all the top lenders and products and best of all our services are free to you!