Changes to Mortgage Insurance Rules Announced

The Honourable Jim Flaherty, Minister of Finance, today announced a number of measured steps to support the long-term stability of Canada's housing market and continue to encourage home ownership for Canadians.

"Canada's housing market is healthy, stable and supported by our country's solid economic fundamentals," said Minister Flaherty. "However, a key lesson of the global financial crisis is that early policy action can help prevent negative trends from developing."

The Government will therefore adjust the rules for government-backed insured mortgages as follows:

1.    Require that all borrowers meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term. This initiative will help Canadians prepare for higher interest rates in the future.

2.    The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home - Very rarely will a 95% refinance situation come into play.

3.    This will help ensure home ownership is a more effective way to save.

4.    Non-owner occupied properties will require a minimum down payment of 20% - To avoid additional costs i.e. premiums, most clients have 25% for down payment on Income properties.  If a client only has 20% for down payment, the premium that CMHC charges is 2.5%. All income property qualifications are based on 25 year amortization. This has not changed.

5.    All borrowers must meet the standards for a five-year fixed rate mortgage even if they choose a mortgage with a lower interest rate and shorter term

6.    The maximum amount one can withdraw in refinancing their mortgage will be reduced to 90% from the current 95% of the value of one's home - Very rarely will a 95% refinance situation come into play.

7.    Non-owner occupied properties will require a minimum down payment of 20% - To avoid additional costs i.e. premiums, most clients have 25% for down payment on Income properties.  If a client only has 20% for down payment, the premium that CMHC charges is 2.5%. All income property qualifications are based on 25 year amortization. This has not changed.

8.    There were not any changes to down payment requirements or amortization for owner occupied properties.

The  Government is acting to help prevent Canadian households from getting overextended, and acting to help prevent some lenders from facilitating it," said Minister Flaherty. "If some lenders aren't willing to act themselves, we will act. These measures demonstrate the Government is committed to taking action when necessary to support the long-term stability of a sector that is so vital to our economy and the financial well-being of Canadian families."

These adjustments to the mortgage insurance guarantee framework are intended to come into force on April 19, 2010.

Please let me know if you have any questions.