Here's what they mean for you!

Given the COVID-19 pandemic and it’s impact in the housing economy CMHC announced changes to its mortgage insurance underwriting criteria yesterday afternoon.

Effective July 1st the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:

  • The maximum gross debt service (GDS) ratio drops from 39 to 35

  • The maximum total debt service (TDS) ratio drops from 44 to 42

  • The minimum credit score rises from 600 to 680 for at least one borrower

  • Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes

It is important to note that this is a CMHC announcement, and as the release states: “These decisions are within CMHC’s authorities under the National Housing Act.”  This is not a directive from the Ministry of Finance and as a result, Canada’s other two mortgage insurers (Genworth Financial and Canada Guaranty) are not yet directly affected after the announcement made on June 4th. It is unclear if they will follow suit, however early indications seem to suggest that the private insurers will not follow with these changes, but each are currently determining their specific response. More details are expected early next week.

In the interim, given the short window for the projected changes, we feel it is prudent to educate any Potential buyer of how this change could effect their purchase after July 1st. 

Outside of the higher credit score requirement and more restrictions surrounding the source of down payment, what does this mean to the borrower? 

It will ultimately reduce their maximum buying power.

Here are a few examples based on household income and maximum affordability:

Scenario based on Household Income of $70,000. 

Maximum Purchase Price Today:    $350,000.00

Maximum Purchase Price After July 1st:    $300,000.00

Scenario based on Household Income of $100,000. 

Maximum Purchase Price Today:    $500,000.00

Maximum Purchase Price After July 1st :    $450,000.00

 

Scenario based on Household Income of $130,000. 

Maximum Purchase Price Today:    $650,000.00

Maximum Purchase Price After July 1st:   $600,000.00

Assumptions based on no outside debts, a property without condo fees and property taxes based on the City mill rate.

Questions? Send us an email!

MMG