Recent Lending Changes Announced by CMHC

Adera Live with Grace Tiu

Originally aired on Adera’s Instagram Live on Thursday, June 11, 2020 at 10:30 PST

Adera Sales Manager and Social Media Publisher, Kerri Zanussi, tuned in with one of our most trusted mortgage advisors, Grace Tiu of the Bank of Montreal. Grace has specialized in lending for sixteen years, she is in tune with all that is happening in the lending market so today we are going to chat about the recent lending changes announced by the CMHC, and other topics.

KZ  We know the Canadian Mortgage and Housing Corp. (CMHC) has announced tighter mortgage qualifications, and those changes will take place on July 1, this year. Can you tell us more about those changes? What should prospective borrowers know about this?

GT It is important to note there are three main areas that are changing. The first change, and the most critical in my opinion, is the  Debt Service Ratio limits are decreasing. The  Debt Service Ratio is your ratio of total payments or financial obligations versus your gross income. Lenders will look at two ratios, the first is called the Gross Debt Service Ratio or GDSR –  which includes your mortgage payments, 50% of your strata fees, property taxes, and heating costs. In total, those payments cannot be more than 35% of your gross income. Lenders will look at a second ratio called the Total Debt Service Ratio or TDSR,  that sums all the payments considered in your other GDSR  plus your other financial obligations such as car payments, student loans, lines of credit, etc, and those cannot exceed 42% of your gross income.

The ratio limits stated above are standard as of today, however, CMHC currently will make exceptions to those rules and increase to 39% and 44% respectively, if you have good credit.  As of July 1st, those exceptions will be eliminated from CMHC insurers. This could make it more challenging for a borrower to get a mortgage-backed by CMHC.

The second change CMHC is making is they are raising their credit score requirements from 600 to 680 effective July 1st.

And the final change is related to the source of your down payment – anything borrowed from an unsecured loan will not be allowed. However, anything coming from a HELOC or gifted, that will be approved.

KZ Are RSPs excluded from that?

GT Absolutely, you can still borrow from your RSPs

KZ As a lender, do you welcome these adjustments?

GT CMHC is doing this in order to provide financial security and stability in an unknown market, this is definitely a reaction to COVID and the economy – the unemployment rate is over 13% and the housing market is volatile right now. They are taking good measures to make sure there is more stability and people are secure.

KZ What impact are you expecting these changes to have in our local housing market?

GT CMHC is forecasting a 9 – 18% decline in the housing purchase prices. The time frame they reference with this projection is pre-COVID time to recovery (which they expect to start in mid-2021). I am sure they will update their forecasts as we evolve through the current pandemic.

KZ Will these changes have any particular effects on new multi-family condo projects?

GT If a customer has at least a 20% down payment there is no impact, standard bank lending practices still apply. If they need an insured mortgage (they have less than 20% as a down payment) there are two other default insurers available. It is important to note, these changes only apply to CMHC, the other two, Genworth and Canada Guaranty, have announced they are not changing.

KZ What can you tell us more generally about the appetite for mortgage lenders like yourself to finance the local residential pre-sale market?

GT BMO has always taken the approach of protecting our customers, they know the future is uncertain, especially now. BMO is able to approve buyers now based on current policies and hold that approval for up to 3 years. CMHC can also hold its approval for up to 3 years. For presale home buyers we want to ensure the building can complete and homeowners will not lose their deposits.

A note for buyers, always confirm your pre-approval is good until your completion date, which can be 1 – 3 years from now!

KZ What kind of concerns or questions are you hearing the most from borrowers these days? What is your main message to them?

GT Borrowers are diverse, and their concerns vary greatly from income to savings. We know there is not a one size fits all solution, we review their individual and unique situation and offer solutions based on that.

A lot of people think to get an insured mortgage you have to be a first-time home buyer, but you do not have to be. If the property you are buying is going to be owner-occupied, and you don’t have an existing CMHC mortgage, you can get insured.

Also, it is important to know that for co-borrowers only one of you is required to meet the minimum credit score of 680, not both.

KZ It has been a pleasure speaking with you. Thank you so much for joining us and for providing clarity on the July 1st CMHC changes.

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Grace Tiu, Mortgage Specialist at BMO

778 873 8751