New CMHC Insured Mortgage Rules

General Victor Anasimiv 16 Feb

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.

CMHC Refinance

• 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.