The Government of Canada made some changes to High Ratio mortgage financing rules yesterday. It is the fourth change since 2008. The changes take effect July 9th.
- No more 30 year amortization. 25 years will be maximum. The longer the amortization the more a client can borrow or keep their mortgage payment lower.
- 80% loan to value on refinances down from 85%. Mortgage refinances have being reduced from 95% all the way down to 80% over the past 4 years.
- No more CMHC insurance on homes over 1 million. Anyone purchasing a home will have to come up with a larger down payment of 20%.
- Lower GDS. Typically on credit scores above 680 the insurer and lender will ignore GDS debt ratio and qualify client on TDS debt ratio only. GDS ratio of 39% will now be enforced. Credit scores lower the 680 still qualify as before with GDS 32% and TDS 42% debt ratios. (GDS ratio calculation is monthly mortgage payment, heat and property taxes as a percentage of monthly gross income. TDS ratio is the same as GDS with other monthly debt expense added in such as credit card and car loan payments. Once a borrower reaches the limit on these ratios they are at their maximum borrowing limit.
These new rules will have an effect on the overall real estate market. The objective of these mortgage changes by the Government is to try and slow down real estate property values growth and to cut back on overall house hold debt.
Please call or email me with any questions.