Last week the Canadian Mortgage and Housing Corporation (CMHC) tightened its rules for an insured mortgage. Mortgage insurance, which protects lenders from risk of borrowers defaulting on their payments, is mandatory in Canada with loans that have a down payment less than 20%.

Qualifying for a mortgage is going to get a bit more difficult for homebuyers, especially first-time home buyers that don’t have at least a 20% down payment. Some of the new changes to the rules are that, at least one applicant’s credit score will need to be 680, up from the previous minimum of 600 and to ensure borrowers can keep up with payments, maximum total debt service ratios will be lowered from 44 to 42.

The CMHC says “non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes”. According to Jessy Bains, senior reporter at Yahoo Finance Canada, buyers will no longer be able to borrow money for a down payment. The old rule allowed homebuyers to use unsecured lines of credit, credit cards and other methods of meeting the minimum 5% down payment require, this is no longer the case.

However, if part of the down payment is considered to be a gift or comes from savings or equity from a sale of a property homebuyers will not be affected by the new rules that come into effect July 1, 2020.

The new rules do not apply to Canada’s Private Mortgage Insurers but they could adopt them on a voluntary basis.  For example, Genworth MI earlier this week announced that they may not adopt all of the new rules by the CMHC in its entirety.

Contact Kesarwani Law Office  at 647-349-8300 or and inquire about how we can advise you on your new purchase and mortgage.