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It’s hardly a surprise that the government decided to step in and make changes to the way unconventional mortgages are insured. I had spoken about the three causes that will cause the market to slow down before and this is the first of the three that we see.
You can find the details of the changes coming through here. Here’s a brief overview:
- Any mortgages issued with less than 20% down payment and insured by CMHC will not be amortized for more than 25 years
- The maximum loan to value (LTV) for refinancing will be limited to a maximum of 80%
- GDS and TDS limits have been adjusted to 39% and 44% respectively
- CMHC will not be insuring any properties sold for over 1 Million dollars
The ruling is quiet detailed and have quiet wide spread effects. CanadianMortgageTrends.com wrote a very nice piece about the changes and how it will impact consumers in the future that should be a must read for anyone looking to find more information.
How do these changes impact you?
First of all, the number of buyers in the market place has been reduced. Some reports suggest as much as 5% of today’s buyers were relying on the higher GDS and TDS allowances and 30 year amortization to make their purchase whom will not qualify for the mortgage any more.
The second impact is for sellers that have properties that are worth more than a million dollars and buyers looking at purchasing them. Any property that is valued at over a million dollar now needs to have the purchaser fork out at least 20% and it’s up to the bank’s discretion if they will be financing it or not since it’s not backed by CMHC. Since CMHC isn’t the only supplier of default mortgage insurance, I contacted Genworth to find out if they had any plans to pick up any customers that will be entering the market looking at purchasing a property valued at over a million dollar. I’m was told that there is no official statement from Genworth head office yet but he imagined Genworth will be following suite with CMHC.
One of my concerns with the upcoming changes was the increase in premiums that would follow and from reports that I’ve read, it looks as if the consumer would see a 20 to 40 base point jump in their mortgage rates to compensate for the additional risk to the banks.
One good thing of bringing this change first, rather than interest rates, is the quantitative easing it will bring to the economy. It also gives the central bank more room to leave their over night lending rates the same or even reduce them to stimulate the economy.
We’ve all been glued to the radio/tv today listening in on what’s happening and with Europe starting to use the “R” word, we might be looking for some relief in the future too.
