As the year comes to an end we take a look back to review the history of recent mortgage rule changes in Canada since the economic crash.
THE WILD WEST
Although financing in Canada was not as open as in the United States, the rules did allow people to buy with little or no money down. In 2007 the government altered the rules to extend the amortization period to 40 years—-something unheard of in Canada till then. These rules would not remain in force for long as the wild west came to an end with some significant changes to mortgage rules beginning in mid 2008 and continuing through November 2016.
The recent announcement is the sixth time since the onset of the 2008 financial crisis that Ottawa has taken policy action in response to concerns about Canada’s housing market.
July, 2008: After briefly allowing insurers to insure high-ratio mortgages with a 40-year amortization period, the Conservative Finance Minister tightened rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.
February, 2010: Responding to concerns that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum loan amount to refinance a property value to 90 per cent, down from 95 per cent. The new rules also increased the down payment to 20-per-cent for government-backed mortgage insurance on properties purchased for investment. In addition rules for variable rate mortgages and short term fixed mortgages 1-4 years would be allowed if a borrower qualified at the benchmark rate rather than the lower contract rate.
January, 2011: The government continued to tighten the rules by dropping the maximum amortization period for a high-ratio insured mortgage to 30 years and reducing the maximum loan amount for refinance purposes to 85 per cent.
April, 2012: The government was concerned about the potential over use of revolving mortgage products. They sought to curb borrower appetites by eliminating mortgage insurance on secured lines of credit.
June, 2012: Another round of rule changes introduced a stress test reducing the maximum amortization period down to 25 years for high-ratio insured mortgages; a maximum debt load of 44 per cent of income on all mortgages regardless of loan to value; a new maximum loan to value of 80 per cent for refinances; limiting government-backed insured high-ratio mortgages to homes valued at less than $1-million and and creating a maximum 65% loan to value on lines of credit unless combined with a mortgage component.
February, 2016: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.
The package of measures included doubling the minimum down payment for insured high-ratio mortgages to 10 per cent from 5 per cent for the portion of a home’s value from $500,000 to $1-million.
OCTOBER 17, 2016
All INSURED mortgages with less than 20% down must qualify at benchmark rate (currently 4.64%)
NOVEMBER 30, 2016
All INSURED mortgages with more than 20% down are required to qualify at the benchmark rate with a maximum amortization of 25 years, max purchase price of $1 Million. Properties maximum 2 units owner occupied and 4 units for non-owner occupied.
Nobody knows if other changes are coming. Stay tuned for more updates.