Kofsky Mortgage

CMHC And What Is Going On With Mortgages

Big earth-shattering news just came out a few days ago when the CMHC, which are the insurers for mortgages, made a big change to the home buying landscape.

Effective July 1st CMHC is reducing its service ratio percentage by 4 and 2 percent, going from 39% of your gross income being your maximum mortgage to 35% and from 44% of your gross income going to your overall debt to 42%. First off, before I get into this, I would like to say (sarcastically) ‘Thanks Evan Siddall’

Moving on… What does this really mean?    

It means for someone that makes $100K per year and is looking to get into the market with less than 20% down. You will now qualify for approximately 10% less.

So if you wanted to buy a home before July 1 and you made 100K per year, you could qualify for about $500,000. Now let’s fast forward about 3 weeks to July 1 and now this same person only qualifies for approximately $440,000.

Poof! Just like that! About 10% less for your mortgage. What?? Why?? So the CMHC has decided that even during a coronavirus pandemic they are going to make it harder for people getting their next home. ‘Gee Wizz… Thanks’

In addition to that credit scores need to at a minimum of 680 from a previous 600. Now you need to not just have good credit, you need impeccable credit.

This is all a kick in the teeth for the first time home buyer. The person whose dream is to enter into the housing market and has saved for a 5% down payment, so 25K can now only qualify for 440K. Are prices slowing down? Nope and the market is still moving forward. People are still buying and will continue to buy, however, an entire group of regular people could be left behind and might be renters for an even longer time.

Outside of the shocker of this announcement the other insurers (Genworth Financial Canada and Canada Guaranty) are not following suit and are keeping their ratios the same. Hmmmmm, this is a little strange because generally, the other insurers follow suit with the CMHC but this time they didn’t. Could this be a change that continues between the other insurers and the CMHC? Is this the point where there will be a larger divide between the different bodies? Who knows but it is interesting for sure.

All in all, what does this mean in the market? In the short term, probably not much as we have until July 1 to figure this all out and since the other insurers are not following the CMHCs lead here, there may be a very negligable impact. In the long term who knows, we are in unprecedented times and things could change.

As always, your mortgage broker will be your best resource to help navigate these choppy waters. I am happy to help, feel free to contact me anytime at 604-202-9913 if you would like more information and advice.

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