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New mortgage rules come into effect
As of March 18, 2011, the rules for government-backed insured mortgages have changed.
The new measures:
- Reduce the maximum amortization period to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. This will significantly reduce the total interest payments Canadian families make on their mortgages, allow Canadian families to build up equity in their homes more quickly, and help Canadians pay off their mortgages before they retire.
- Lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 per cent from 90 per cent of the value of their homes. This will promote saving through home ownership and limit the repackaging of consumer debt into mortgages guaranteed by taxpayers.
- Withdraw government insurance backing on lines of credit secured by homes, such as home equity lines of credit, or HELOCs. This will ensure that risks associated with consumer debt products used to borrow funds unrelated to house purchases are managed by the financial institutions and not borne by taxpayers.
The adjustments to the mortgage insurance guarantee framework come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.
In October 2008, the Government adjusted its minimum standards for the mortgage insurance guarantee framework, including:
- Fixing the maximum amortization period for new government-backed insured mortgages to 35 years.
- Requiring a minimum down payment of five per cent for new government-backed insured mortgages.
- Establishing a consistent minimum credit score requirement.
- Requiring the lender to make a reasonable effort to verify that the borrower can afford the loan payment.
- Introducing new loan documentation standards to ensure that there is evidence of reasonableness of property value and the borrower’s sources and level of income.
In April 2010, the Government took additional measured steps to support the long-term stability of Canada’s housing market and continue to encourage home ownership for Canadians. Adjustments to the mortgage insurance guarantee framework included:
- Requiring that borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term.
- Lowering the maximum amount Canadians can withdraw in refinancing their mortgages to 90 per cent from 95 per cent of the value of their homes.
- Requiring a minimum down payment of 20 per cent on non-owner-occupied properties purchased for speculation.
