CMHC rules change, but don't panic

Daniel Smyth

May, 2010

Spring is here. The grass is riz. I wonder where my dream home is. There it goes flying by, dropping the “sold” sign in my eye. I don’t laugh. I don’t cry. I’m just thankful I qualify.

This buyer is looking to purchase a home during the peak of the real estate season in Montreal and is qualified for a mortgage at a bank. However, as of April 18, it may be more difficult to qualify for a mortgage. To protect Canada’s real estate market and strong economic foundation, the federal minister of finance announced several steps to support the stability of the housing market and prevent a “housing bubble” from developing. The government changed the rules for insured mortgages, hopefully for the better.

The rules: Borrowers will have to meet the standards of a five-year fixed-rate mortgage even if the product they are buying will be at a lower interest rate (i.e., a flex rate). This is supposed to help Canadians prepare for higher interest rates. It is probable that interest rates will increase because they have not been this low in 50 years.

When refinancing their mortgages, buyers will only be able to borrow 90 per cent of the value of their home, down from 95 per cent. This is to prevent buyers from using their home equity as a “cash cow.”

When purchasing a revenue-generating property (non-home-owner occupied), investors will have to produce a minimum down payment of 20 per cent instead of five per cent. This will put a dent in some investors’ plans and may reduce the number of investors looking to buy.

In my opinion, fewer buyers might lower demand for revenue properties, slowing the growth in the average sale price and a reduction in the number of rental properties available might cause rental rates to increase. These changes affect CMHC-insured mortgages only and not necessarily private insurers. Furthermore, most banks qualify buyers on a more stringent profile anyway and for many lenders, the rules aren’t a serious change.

Don’t panic, but here is some advice: Talk to your bank, a mortgage broker or real estate agent and ask them how this might affect your plans to buy. Be informed and never purchase in a hurry.

Maybe it is a good thing that you wait to save a larger down payment. It is only in your interest because a home may be the single largest investment of your lifetime.

Daniel Smyth is an affiliated real-estate agent with Groupe Sutton-Clodem Inc.