New Mortgage Regulations
New mortgage market regulations coming On July 9, the Government of Canada announced that mortgage market regulations would tighten later this year to ensure a healthy housing market and reduce the risk of a US-style housing bubble from developing in Canada. Effective October 15, 2008, government-backed mortgage insurance will only be available on mortgages with an amortization period up to 35 years; currently, the maximum amortization period is 40 years. Additionally, government-backed insurance will be limited to mortgages with a loan-to-value ratio up to 95 per cent, down from the current 100 per cent. Other regulatory changes include the establishment of a credit score floor, loan documentation to ensure there is reasonableness of property value, borrower’s sources and level of income. Mortgage insurance on high-ratio mortgages that don’t require amortization in the first few years from the government guarantee (i.e., interest only products) won’t be backed, and a maximum of 45 per cent on a borrowers’ total debt service ratio will be set. The new regulations apply only to new mortgage originations, while existing originations will be unaffected. The lag period prior to the regulatory change will allow existing mortgage pre-approvals to be used or expire. All mortgage insurance companies will be affected by this regulatory change.
For the news release from the federal Department ofFinance, visit www.fin.gc.ca/news08/08-051e.html.
Reprinted with permission, from BCREA