OTTAWA – Some Canadians may have a harder time insuring their mortgages from June forward, as the Canada Mortgage and Housing Corporation (CMHC) is moving to discontinue two of its longstanding mortgage insurance access programs.
Effective May 30th, the Second Home and Self-Employed Without 3rd Party Income Validation mortgage insurance programs will no longer be available to Canadians, the corporation announced in a statement issued on April 25.
According to a companion FAQ prepared by the corporation, the two programs “will remain available for new mortgage loan insurance requests submitted to CMHC before May 30, 2014, regardless of the closing date of the home purchase.”
Mortgage insurance is required for homeowners looking to purchase real estate with a down payment of 20 per cent or less (five per cent being the minimum). According to CMHC, the vast majority of consumers who insure their mortgages through the corporation are first-time buyers – with the two programs on the chopping block accounting for “less than three per cent of CMHC’s insured business volumes in units.”
A Broker’s Perspective
To get a better idea of how the changes will impact regular home buyers, GTA Real Estate News caught up with our regular correspondent Shubha Dasgupta, a Greater Toronto-based mortgage broker with Dominion Lending Centres.
Dasgupta’s biggest concern is the fact that, without the Second Home program, the maximum amount of insured mortgages allowed under CMHC will be just one per buyer – leaving parents unable to act as a co-borrower or guarantor for their children’s first homes.
“Although many of the parents we come across in these situations do not have a high-ratio mortgage,” Dasgupta explains, “A lot do have income and investment properties that are insured.”
Dasgupta also anticipates that a sizeable chunk of second-time home buyers – those who intend to keep their entry-level home or condo for investment purposes – will “unfortunately not be permitted to do so” if their first mortgage was CMHC-insured.
“The other group of home buyers this will affect is the real estate investors,” Dasgupta adds. “Their options will once again shrink, and their ability to maintain multiple mortgages may decrease.
Self-employed home buyers, on the other hand, will still be able to insure their mortgages – but must validate their income via a formal process. As CMHC explains:
“For the majority of self-employed borrowers, income validation is readily available. To validate their income, self-employed borrowers can provide copies of their Notice of Assessment, audited financial statements or unaudited financial statements prepared by an independent third party, for the previous two year period.”
While these newest mortgage changes do coincide with the recent appointment of Joe Oliver as Federal Finance Minister, CMHC’s Senior Vice President Steven Mennill has stated that they were made “as part of the review of [CMHC’s] mortgage loan insurance business.”
The move to phase out these two programs has not yet been mirrored by Genworth Financial and Canada Guaranty, but Dasgupta notes that “if past history is any indicator, then we can expect that they will.”
Meanwhile, an unrelated CMHC premium increase – one that was originally announced in February and promptly echoed by Genworth Canada and Canada Guaranty – has taken effect on May 1. The hike will see premiums going up by an average of 15 per cent, with the highest premiums affecting those who made five-per-cent down payments on their homes.
If you are uncertain about whether you qualify for an insured mortgage in Canada, the best first step is to speak with a licensed mortgage broker, who should be up-to-date on the changing rates and restrictions imposed by CMHC and alternative Canadian mortgage insurers like Genworth Canada.