New Canadian Housing Rules – CMHC Will Reduce The Amount You Can Borrow Against Your Home from 90% t
The Canadian Government announced new housing rules today that further tighten the criteria for high ratio mortgage insurance financing. In the next three weeks we are going to write an article that covers each new change, its impact to you and what you can do to prepare for a continuing trend of financial belt tightening in Ottawa.
I will start this article by explaining a term used in the financial industry "loan-to-value". This is the amount owed against a property in mortgages, against the property's value expressed as a percentage. For example, if you were to purchase a home with a 5% down payment, you would need to obtain a mortgage for the other 95% of the value of the purchase.
High ration insurance came to be as traditionally (and we are going back 20 years) you would need a 25% down payment in order to purchase a home in Canada, if you were seeking rational mortgage financing by your bank. CMHC (The Canadian Mortgage and Housing Corporation) then came up with a high ratio insurance product where in effect, when you purchase a home you could purchase government backed insurance to protect your bank from incurring losses in the event of a default.
Banks in turn proceeded to begin issuing higher ratio mortgages for applicants who qualified for this insurance. When you apply for a mortgage that is over 75% loan to value with your bank, your bank often will submit your application to CMHC for insurance approval. If CMHC says no, most of the time the bank will say no too.
In the past 10 years CMHC has also high ratio insured homeowners seeking to refinance their homes up to 90% of the homeowner's equity, which is the subject of one of the changes that was announced by Minister Flaherty today.
The government plans to reduce the loan to value that they will insure from 90% down to 85%.
For those of you who have been teeter tottering about making a decision to use home equity to consolidate debt, well your time is running out if you don't have a lot of equity in your home. Now that this announcement has been made, the banks will likely react by implementing changes to their public lending guidelines.
Also there will still be some trust, finance and other lending companies that will offer you high ratio mortgage financing without CMHC high ration insurance and you can usually obtain this type of financing through a mortgage broker. For more information about the new Canadian Housing Rules please visit www.trueassess.com.
I will start this article by explaining a term used in the financial industry "loan-to-value". This is the amount owed against a property in mortgages, against the property's value expressed as a percentage. For example, if you were to purchase a home with a 5% down payment, you would need to obtain a mortgage for the other 95% of the value of the purchase.
High ration insurance came to be as traditionally (and we are going back 20 years) you would need a 25% down payment in order to purchase a home in Canada, if you were seeking rational mortgage financing by your bank. CMHC (The Canadian Mortgage and Housing Corporation) then came up with a high ratio insurance product where in effect, when you purchase a home you could purchase government backed insurance to protect your bank from incurring losses in the event of a default.
Banks in turn proceeded to begin issuing higher ratio mortgages for applicants who qualified for this insurance. When you apply for a mortgage that is over 75% loan to value with your bank, your bank often will submit your application to CMHC for insurance approval. If CMHC says no, most of the time the bank will say no too.
In the past 10 years CMHC has also high ratio insured homeowners seeking to refinance their homes up to 90% of the homeowner's equity, which is the subject of one of the changes that was announced by Minister Flaherty today.
The government plans to reduce the loan to value that they will insure from 90% down to 85%.
For those of you who have been teeter tottering about making a decision to use home equity to consolidate debt, well your time is running out if you don't have a lot of equity in your home. Now that this announcement has been made, the banks will likely react by implementing changes to their public lending guidelines.
Also there will still be some trust, finance and other lending companies that will offer you high ratio mortgage financing without CMHC high ration insurance and you can usually obtain this type of financing through a mortgage broker. For more information about the new Canadian Housing Rules please visit www.trueassess.com.
