Blog, Mortgages

CMHC Tightens Lending Guidelines

Oh Boy.  Here we go.  I was chatting with my favorite underwriter at Scotiabank yesterday and she whispered how frustrated she was with CMHC and that Genworth is much more willing work with mortgage clients, whether buying or refinancing.  The new rules as layed out by Flaherty were pretty soft and didn’t really do much to affect the majority of Canadians, but CMHC has just stepped up to bat and knocked one completely out to left field.

Who are the latest victims?

1.  Self Employed & Commissioned Income Earners who have been in the same role for 3 or more years.

Clarification:

If you are self employed and run your business through a Corporation, you better be paying yourself a fat enough salary after three years to qualify for your mortgage.  No longer will CHMC Self Employed Simplified offer you a “stated income” type product.

If you are self employed and DO NOT run your business through a corporation, instead choose to be a sole prop – then you are already claiming all of your income – minus write off’s, so you MUST be making enough money to qualify for your mortgage.  This is the “make sense” approach CMHC has taken. Furthermore, the maximum loan-to-value ratio available under the CMHC Self-Employed Product Without Traditional Third Party Validation of Income will be reduced from 95% to 90% for purchase transactions and from 90% to 85% for refinance.

So far, we have not heard if Genworth is going to follow suit.  Let’s hope not.

2.  Qualifying via Rate

Here are the new qualifying rules – through CMHC.

• If you choose a 5 year fixed rate (or longer term) mortgage – that is the rate you will have to qualify under.  Easy, fine, okay.
• If you choose ANY other term, 4 year, or 3, 2, 1 or any term under a variable rate mortgage, you will have to qualify with the 5 year benchmark rate and the contract interest rate.
  

Fixed Rate Mortgages and Variable Rate Mortgages: 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 in the series V121764 as of 12:01 AM (Eastern Time) each Monday, and which can be found here.