Mortgage rules are something that we should all be aware of when arranging our financing but in particular if you are a first time home buyer or a foreign investor. In October of last year the government announced that there would be changes to the way mortgages were dealt with. With the consistently low interest rates there is a risk that we may take on larger mortgages than can be afforded. These changes will also address foreign investors who make money “Flipping” Canadian home.
The way we were
Formerly buyers with at least 5% down but less than 20% must be backed by “high ratio” mortgage insurance. If you had more than 20% you could get a “low-ratio”insurance to cover a default.
The changes to the rules now see all new insured mortgages, even those over 20% are affordable if the interest rates were to rise.
There is a stress test that is required to pass in order to be approved. Mainly that you can afford the loan at the five-year fixed rate, spend no more than 39% of your income and that your total debt not exceed 44%. There are other new rules for “low ratio” mortgages as well such as the amortization needs to be 25 years or less, credit score of 600 and the property owner-occupied.
Here is a fantastic supplementary article outlining the four main changes and what they mean to you: http://www.theglobeandmail.com/real-estate/four-major-changes-to-canadas-housing-rules/article32223470/
Here is what Canada Mortgage and Housing Corporation has to say: CMHC Website (Mortgage Rules)