Mortgage Rules History

Canada’s finance department recently made an announcement of new mortgages rules that were set to go into effect April 6th.  The rules are intended to make it a little easier for first-time homebuyers to get into the real estate market. This is just the latest in a slew of new mortgage rules brought in over the years.

Let’s take a look at some of the most significant mortgage rule changes brought in over the years.

Maximum Amortization Period for High-Ratio Mortgages Limited (July 9, 2012): The federal government limited the maximum amortization period for high-ratio mortgages. For homebuyers putting down less than 20%, the maximum amortization was reduced to 25 years.

Those weren’t the only changes the government made. It also reduced the maximum Gross Debt Service Ratio and Total Debt Service Ratio to 39% and 44% respectively. On top of that, it banned mortgage insurance on homes with a purchase price over $1 million and limited the maximum loan-to-value to 80% on refinances.

Higher Minimum Down Payment (February 15, 2016): The federal government increased the minimum down payment required on homes with a purchase price above $500,000. Instead of only being able to make a 5% down payment, homebuyers now have to make a 10% down payment on the portion of the purchase price above $500,000.

High-Ratio Mortgage Stress Test (October 17, 2016): The federal government introduced a stress test for all high-ratio mortgages with a mortgage term of five years or greater. (A high-ratio mortgage is a mortgage where the borrower is putting down less than 20 percent.) The stress test makes sure borrowers can handle mortgage payment based on the Bank of Canada’s qualifying rate (currently at 5.04 percent).

Conventional Mortgage Stress Test (November 30, 2016): But the federal government wasn’t done tinkering with the mortgage rules. Less than a couple months later, the federal government extended the stress test. Instead of only being for those making a down payment of less than 20%, the stress test now applied to conventional mortgage, those making a down payment of 20 percent or more.

On top of that curtain types of mortgage transactions could no longer be insured. This included refinances, 30 year amortizations and single-unit rentals. Although a borrower could still get a mortgage in these instances, in most cases it resulted in the borrower paying a higher mortgage rate (since it became more costly for mortgage lenders to backstop these mortgage transaction types).

Home Buyers’ Plan (March 20, 2019): Mortgage rule changes aren’t all bad news. For the first time in years, the federal government increased the Home Buyers’ Plan withdrawal limit. The amount you could withdraw as a first-time homebuyer increased from $25,000 to $35,000. The changes were made to help with the rising home prices in big cities like Toronto and Vancouver.

 

Brought to you bySean Cooper

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