The Canada Mortgage and Housing Corporation (CMHC) has rules for mortgages that they insure, as the risks of insured mortgages are transferred from mortgage lenders to the CMHC.
If you make a mortgage down payment that is less than 20%, you will need to get CMHC insurance, unless you choose to go with a private mortgage lender or an alternative private mortgage insurer. To limit their risk, the CMHC changed the rules and minimum requirements to get an insured high-ratio mortgage.
For more information on OSFI rule changes and the June 2021 stress test changes, visit our mortgage stress test guide.
The CMHC introduced new underwriting policy changes that went into effect on July 1, 2020 to help manage risk by making it harder for homebuyers to qualify for a CMHC-insured mortgage. The CMHC predicted that these new CMHC mortgage rules will reduce eligibility by 30%. These new CMHC rules are still in effect in 2021.
At least one borrower will need to have a minimum credit score of 680. Previously, the minimum credit score was 600.
You can no longer borrow money for your down payment, which means that your down payment can only come from your own money or a non-repayable gift.
Previously, non-traditional down payment sources, such as personal loans, were allowed for mortgages with a down payment of 5% to 10%, provided that the borrower had a minimum credit score of 650.
Your debt service ratio (GDS and TDS) is a measure that is used to see if you can afford your debt payments and housing costs. The maximum GDS and TDS ratios allowed are being reduced, which means that the maximum mortgage that you will be able to qualify for will be smaller.
These new CMHC rules will mean that some homebuyers will not be able to qualify for CMHC mortgage insurance, or that they may qualify for a smaller amount.
For example, let’s say that your annual gross income is $100,000, and you currently have no housing costs, property taxes, or other costs. With the previous GDS ratio of 39%, you will be able to qualify for a mortgage with a monthly mortgage payment of up to $3,250 per month.
With the reduced GDS ratio at 35%, you can only get a mortgage with a monthly mortgage payment of up to $2,917. This means that the maximum amount that you can borrow will be smaller.
Assuming a mortgage amortization of 25 years and a mortgage rate of 3%, a monthly mortgage payment of $3,250 will be made on a mortgage of $687,000. In comparison, a monthly payment of $2,917 will be made on a mortgage of $616,000. The mortgage amount that you qualify for has been reduced by $71,000 due to the CMHC mortgage rule changes.
Canada's two major private mortgage insurers, Canada Guaranty and Sagen (Genworth), did not follow the CMHC in changing their underwriting policy. While CMHC insurance is the most common type of mortgage default insurance, most mortgage lenders will allow you to get mortgage insurance from Canada Guaranty or Sagen instead.
These private mortgage default insurers have kept their GDS ratio at 39% and TDS ratio at 44%. However, Sagen (Genworth) also recommends that at least one applicant should have a credit score of 680, the same as CMHC.
There are a few basic requirements for CMHC-insured mortgages. These requirements haven’t changed in 2021.
These basic requirements are also followed by private insurers Canada Guaranty and Sagen (Genworth). For residential mortgages, you can only have one homeowner CMHC-insured mortgage at a time, which means that you cannot get a CMHC-insured mortgage for a second home.
CMHC does offer mortgage loan insurance for multi-unit properties, but you will need to make a higher down payment. For multi-unit residential properties that will be owner-occupied, you can get CMHC insurance with a minimum down payment of 5% for 1-2 unit properties, or a minimum down payment of 10% for 3-4 unit properties.
Non-owner occupied rental properties with two to four units will need a down payment of 20% to be eligible for CMHC mortgage insurance. You will be able to use up to 50% of your rental income when calculating your debt service ratios.
Sagen (Genworth) and CMHC both only allow traditional sources for your down payment, such as your savings or a gift from a relative. Canada Guaranty allows down payments to be borrowed, such as from a loan, for certain mortgage insurance products.
The maximum amortization for all insured residential mortgages in Canada is 25 years. This change was made by the OSFI in 2012. Before 2012, the maximum amortization was 30 years for insured mortgages. This was reduced from 35 years in 2011 and 40 years in 2008.