Changes to the eligibility rules for new government-backed insured residential real estate mortgages were announced by the Minister of Finance on Monday, October 3/16. There have been some further clarifications since then. This reflects the new changes with modifications to the regulations from the original release as of Dec. 8/16.
This document provides information on the implications for high-ratio mortgage insurance changes only. Another message will be issued regarding the low-ratio eligibility requirements outlined in the October 3, 2016 Department of Finance announcement.
a) Changes to the Qualifying Rate for High-Ratio Insured Residential Mortgages:
- Effective October 17, 2016 all high-ratio (>80% loan-to-value mortgages) insured homebuyers must qualify using an interest rate that is the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate.
- The Bank of Canada’s website updates the rates weekly. They are available on their website: (www.bankofcanada.ca/rates/daily-digest/).
- The new requirements will apply to all mortgage terms.
b) Furthermore, debt-servicing ratios (gross debt service ratio (GDSR) and total debt service ratio (TDSR)) must not exceed the maximum allowable limits when the greater of the contract interest rate and the Bank of Canada posted rate qualification criteria is applied. The GDSR must not exceed 39% and the TDSR must not exceed 44%.
c) The new rules for qualifying real estate rates will not apply to applications that meet any of the following criteria:
- a mortgage insurance application was received prior to October 17, 2016;
- prior to October 17, 2016, the lender made a legally binding commitment to make the loan; or,
- prior to October 17, 2016, the borrower entered into a legally binding agreement of purchase and sale.
For applications received on or after October 17, 2016, most underwriting systems will reflect the new high-ratio qualifying rate criteria for mortgage insurance adjudication. Lenders are continuing to submit the contract loan rate when submitting the mortgage insurance application.
Kincardine and Port Elgin area lenders and realtors are all working with the new changes and have indicated that it the 44% TDSR does impact a few more potential purchasers where their other debts like cars, boats, snow sleds etc. need to be counted in the equation. As always, future home buyers should plan and budget their plan carefully. In general however, the changes are perceived as a prudent move to assist in avoiding any drastic impact to the housing market and helping to ensure that home ownership remains one of the most sensible and profitable investments anyone can make in the Ontario real estate market.
For more information, contact Morrison in Kincardine at 519.389.7153 or toll free at 1.877.223.0985