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 were reversed on July 5, 2021.
On July 5, 2021, the CMHC relaxed their underwriting guidelines to match with Canada's two private mortgage insurers. These changes:
At least one borrower will need to have a minimum credit score of 600. Previously, the minimum credit score was 680.
You can no longer borrow money for your down payment, which means that your down payment can only come from your own money or from a non-repayable gift.
Before July 1, 2020, 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 are ratios to measure your affordability for a potential mortgage, based on your current existing obligations and income. For example, let's say that your gross monthly income is $8,000. You're looking to buy a $500,000 pre-construction condo in Toronto that will require a monthly mortgage payment of $2,000. You will also need to pay property tax of $250 per month, heating will be $100 per month, and condo fees are $500 per month.
These costs all make up the gross debt service ratio (GDS). In this case, the GDS will be:
($2,000 + $250 + $100 + $500) / $8,000
= $2,850 / $8,000
The GDS is 35.6%. This is under the CMHC’s GDS limit of 39%, which means that this borrower will pass this CMHC rule. However, the borrower will also need to pass the CMHC’s TDS limit. For example, this borrower might be making $750 per month in car loan payments.
The TDS ratio will be:
($2,850 + $750) / $8,000
= $3,600 / $8,000
These new CMHC rules will mean that more homebuyers will be able to qualify for CMHC mortgage insurance, and that they may qualify for a larger mortgage 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 35%, you will be able to qualify for a mortgage with a monthly mortgage payment of up to $2,917 per month.
With the increased GDS ratio at 39%, you can get a mortgage with a monthly mortgage payment of up to $3,250. This means that the maximum amount that you can borrow will be larger.
Assuming a mortgage amortization of 25 years and a mortgage rate of 3%, a monthly mortgage payment of $2,917 will be made on a mortgage of $616,000. In comparison, a monthly payment of $3,250 will be made on a mortgage of $687,000. The mortgage amount that you qualify for has been increased by $71,000 due to the CMHC mortgage rule reversal for someone with an annual gross income of $100,000.
Canada's two major private mortgage insurers, Canada Guaranty and Sagen (Genworth), did not follow the CMHC in changing their underwriting policy in 2020. These private mortgage default insurers have kept their GDS ratio at 39% and TDS ratio at 44% throughout 2020 and 2021.
CMHC vs. Sagen
|Minimum Credit Score||680||600||600||600|
|Max GDS Ratio||35%||39%||39%||39%|
|Max TDS Ratio||42%||44%||44%||44%|
Most mortgage lenders will allow you to get mortgage insurance from Canada Guaranty or Sagen instead of CMHC insurance, which means that while CMHC insurance is the most well-known type of mortgage default insurance, it is not always the most common in Canada.
The CMHC's mandate as a Crown corporation is to make housing affordable and accessible in Canada. By introducing stricter mortgage insurance rules, the CMHC limited the number of Canadians that could get an insured mortgage, and drove some off to private mortgage insurers.
For example, DUCA credit union offers insured mortgages in Ontario by CMHC, Sagen (Genworth) and Canada Guaranty. According to DUCA’s 2020 Annual Report, of DUCA's $1.07 billion of insured mortgages in 2020, 32.3% were insured by CMHC, while 67.7% were insured by Sagen (Genworth) and Canada Guaranty.
|Mortgage Insurer||% of Insured Mortgages (2020)|
|Sagen (Genworth) and Canada Guaranty||67.7%|
Loosening their insurance requirements by lowering the minimum credit score and increasing maximum allowed debt service ratios makes CMHC-insured mortgages more accessible to Canadians who need the most support in getting a mortgage.
Between July 1, 2020 and July 5, 2021, the CMHC had stricter insurance rules. Those stricter rules have now been relaxed. These rules included:
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.