The Home Front Blog

Understanding the New CMHC Mortgage Changes

UPDATE – June 9, 2020
 
So you’ve heard CMHC has tightened its mortgage qualification rules…but what does that really mean? We break it down for you below the W5 way.

WHO:
Let’s start with who CMHC is – the Canadian Mortgage Housing Corporation is a crown corporation (meaning government owned) that provides mortgage insurance for mortgage lenders (like banks).  Any mortgage in Canada with less than 20% down must have insurance – this protects the bank or lender if you default aka can’t pay off your mortgage loan. You pay a monthly premium on your mortgage for this just like you would with any other type of insurance.
 
However CMHC isn’t the only provider of mortgage insurance – the others are Genworth and Canada Guaranty. These current mortgage qualifications aren’t directed by the federal government so it doesn’t mean the other insurance providers will definitely impose the same changes.
 
Update – Genworth has announced it has no plans to change its policy at this time. 
 
We’ll update again this once we’ve heard the announcement from Canada Guaranty.
 
WHY:
So why are they doing this now?
CMHC is managing the risk to their insurance business during these uncertain economic conditions. This means they are looking to avoid high-risk mortgages which would have a higher likelihood of defaulting resulting in them paying out the insurance.
 
WHAT:
So let’s break down what exactly are the CMHC changes:
    • Gross Debt Service Ratio decreased to 35% (from 39%) – GDS is the cost of your mortgage & utilities divided by your annual income.
    • Total Debt Service Ratio decreased to 42% (from 44%) – TDS is the cost of your mortgage & utilities PLUS your other debt divided by your annual income.
    • Minimum credit score of 680 (up from 600) for one of the borrowers on the mortgage application
    • Loaned or financed funds will not be acceptable for down payments
 
WHEN:
This change is scheduled to take effect July 1st, 2020, so any home purchased before then falls under the previous qualifications.
 
To sum it up:
    • If you do not meet one of the new thresholds above, you may not qualify for an insured mortgage with CMHC after July 1st
    • The impact of the reduced Debt Service Ratios mean you may be approved for a lower mortgage after July 1st
    • But again this is just with CMHC for now, so you may still qualify with one of the other 2 mortgage insurers

What to do:
So if you’re sitting there googling how to calculate your debt-service ratio, google “find a mortgage broker” instead. You don’t know what you don’t know. So find out where you sit, if these changes might affect you, and what you can do about it. Knowledge is confidence and we hope this gave you a little more of that on your journey to home ownership.
 
Or if you don’t want to wait, you can get ahead of the changes with Rohit’s incredible pricing on quick possession designer homes available in Edmonton, Calgary and Regina.