Yesterday's mortgage rule changes sparked as many questions as answers. Here's what we know (to the best of our knowledge) at this point. The quotes come from an insurer memo we received.
Qualifying Rate:
- Regardless of the mortgage term you choose, the interest rate used to qualify you will be "the greater of the contract rate and the Approved Lender's five-year fixed rate."
- There is big confusion about which 5-year fixed rate will be used: discounted or posted. A source at CMHC tells us this is the #1 question they've been getting.
- It's a key point because posted 5-year rates are as much as 1.6% higher than 5-year discounted rates. If posted rates are used, it means borrowers will qualify for lower mortgage amounts.
- The Finance Department is apparently aware of this ambiguity and is expected to announce clarification on this point in the next few days.
- It's interesting to note that CMHC used to require that lenders use the 5-year posted rate to qualify people on variable-rate mortgages. Perhaps they'll go back to this? We'll see.
Second Homes:
- CMHC will no longer insure 2nd homes with more than one unit.
- The borrower or his/her relative must live in the property "at some point during the year" and on a "rent-free" basis. Lenders must confirm that this will be the borrower's intention.
Borrowed Down Payments:
- We hear that borrowers might no longer be able to borrow their down payments on an insured rental mortgage. We're awaiting confirmation of this.
Porting Existing 95% Rental Mortgages:
- If you switch an existing rental mortgage to a new lender, and the loan-to-value is over 80%, you will not be affected by the new 80% maximum LTV requirement. (As long as the loan amount, LTV, and amortization do not change.)
5+ Unit Rental Properties:
- 5+ unit rental mortgages will not be affected by these changes when insured under CMHC's Multi-Unit program.
Please feel free to give me a call if you have any questions.
