It’s no news that the new mortgage rules have thrown everyone into a tizzy! Not only, are there new rules, but now there is new terminology and a new way of thinking we need to adopt, so I thought it would be a great primer to spell it out in this blog post.
Before November 30, 2016 we would assess a Purchase in terms of Conventional or High Ratio. Now we need to look at a Purchase in terms of Insurable or Un-Insurable. Note all refinances are considered Un-Insurable.
So how does this affect you?
If your deal is Insured, meaning it is insured by CMHC or Genworth, then the following parameters apply:
- The Purchase price of the property must be less than $1 Million
- Mortgage must be a Purchase or Transfer
- The Minimum Beacon score must be 600
- Debt Ratio are max GDS -39% or TDS 44%
- Must qualify at the benchmark rate of 4.64% (you can pick a variable or fixed rate)
- The maximum Amortization will be 25 years
- Rentals – only 2-4 units allowed
Further to the above criteria, for Transfers:
- Transfers that have a previous policy in place are allowed to maintain the existing schedule up to 35 years
- Transfers that do not have an existing policy in place must have a remaining amortization of 25 years or less
If your deal is Un-Insured, meaning it is not insured by CMHC or Genworth, then the following parameters apply:
- All Refinance and/or Equity Take Out mortgages will no longer be insured
- If the Deal is conventional (80% or less) you can still qualify at the 5-year contract rate
- All mortgages that are valued at $1 Million or greater will be un-insurable
- Depending on the lender, if the amortization exceeds 25 years (some still offer 35 year amortizations), then you will be un-insured
- Single Unit Rentals are now un-insurable (with certain lenders there will also be a rate premium added to the rental purchase)
Let’s look at an example of an Insured Purchase.
Client purchasing a rental property (2-4 units) priced at $675,000
Downpayment -20% $135,000
Qualifying Rate 4.64%
Variable Rate is prime -.35%, however rentals are now charged an extra 25bps premium (depending on the lender)
Variable Rate 2.60%
Amortization 25 years
Monthly Payment $2,445.99
Do you want to know what your numbers might look like under these new rules? Let’s do an analysis for you on your next property so you can get ahead of the mortgage rules!