|New CMHC Insured Mortgage Rules|
Recently, the Government of Canada announced new rules regarding CMHC mortgage insurance.
CMHC has changed its 1 to 4 unit investment (rental) product offering to reflect the new Government Guarantee Parameters. CMHC also made changes to its policy on its Self Employed & Second Home Products
These changes are effective April 19, 2010:
Qualifying Interest Rates
• For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate and the contract interest rate.
• CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage 5-year rate that is the most recent interest rate published by the Bank of Canada.
• For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
• For mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages) each component must be qualified using the applicable criteria defined above.
• The maximum amount Canadians can withdraw in refinancing their mortgages is reduced to 90 per cent from 95 per cent of the value of their homes.
CMHC Income Property
• A 20 per cent downpayment is required for small (i.e. 1- to 4-unit) non-owner occupied residential rental properties.
TDS Total Debt Service Ratio Formula
• CMHC will also be implementing changes to the calculation of a borrower’s Total Debt Service Ratio where rental income is included in the calculation of household gross annual income.
• Effective April 19, 2010, under the revised calculation, fifty percent (50%) of the gross rental income from the subject property may be included into the borrower’s gross annual income for the purposes of calculating the borrower’s Total Debt Service Ratio.
• Previously 80% of the gross rental income was deducted from the total household debt service cost to calculate the Total Debt Service Ratio.
• Rental income from all other rental properties will be treated the same as other non-salaried income.
CMHC Second Home
• CMHC Second Home product will only be available for 1 unit owner occupied properties.
CMHC Self Employed
• CMHC is reducing the maximum Loan to Value (LTV) for the Self-Employed Product Without Traditional Third Party Validation of Income.
• For purchase and portability transactions, the maximum LTV is being reduced from 95% to 90%; and for refinance transactions, the maximum LTV is being reduced from 90% to 85%.
• Effective April 9, 2010, self-employed borrowers who have been self-employed in the same business for more than 3 years will not be eligible under CMHC’s Self-Employed Product Without Traditional Third Party Validation of Income.
• Since commissioned income can be relatively easily substantiated, borrowers who earn income through commission will no longer be eligible for the CMHC Self-Employed Product Without Traditional Third Party Validation of Income.