Of Prime Interest: High-ratio mortgage regulations tightened again

These changes are meant to weed out marginal buyers and curb excessive speculation in the housing market.

  • May. 11, 2014 2:00 p.m.

The Canada Mortgage and Housing Corporation has tightened the rules further on qualifying for high-ratio mortgages.

This is the fourth time in the last two years the rules have changed for mortgage applicants with less than a 20 per cent down payment.

These changes are meant to weed out marginal buyers and curb excessive speculation in the housing market, particularly as speculation is ongoing about a rise in interest rates.

The fear for CMHC had become too large a player in the market, with about $560 billion in outstanding mortgage insurance on its books, leaving Canadian taxpayers exposed to risk should there be a housing crash.

So as of May 30,  CMHC now says it will no longer insure purchases by self-employed workers without third party income validation. As well, buyers looking to purchase a second property will have to provide a 20 per cent minimum down payment.

CMHC estimates these changes will affect less than three per cent of the mortgages it insures.

These mortgage options have experienced an increased scrutiny over the past year and already had become difficult to qualify for.

So the impact of these latest changes is not expected to be significant on the housing market.

Other changes that have also been adopted include reduction of the maximum mortgage amortization period from 30 to 25 years; home refinancing reduced from 85 to 80 per cent of the property value; properties with a value exceeding $1 are no longer eligible for mortgage insurance and thus require a minimum 20 per cent down payment.

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