Insured Mortgage Changes

There have been many changes to insured mortgages in the last few years. Some are finding it more challenging to qualify particularly if you are self-employed or are looking to purchase an investment property. Amortizations have been reduced, premiums have increased and some programs have even been eliminated.

To put things into perspective, I thought it would be interesting to take a look back to how the insured mortgage market has changed in Canada since its inception in 1954 as there have been many changes to the mortgage insurance program since it was first introduced to improve accessibility to homeownership for Canadians.

Prior to 1954 it was extremely difficult to buy a home in Canada unless you had cash. Lending practices were extremely stringent and you needed a minimum 50% down payment and the payments were very high.

The National Housing Act was passed in 1954 which introduced mortgage insurance to Canada. The program compensated lenders if a homeowner defaulted. The other goal was to bring the chartered banks into residential mortgage lending and to reduce dependence on public funds. Prior to this date, life insurance companies had been the largest private mortgage lenders in Canada.

Originally only new homes could be insured under the program and they had to meet NHA housing standards. The target demographic was lower middle income families and all lenders had to be approved by CMHC. CMHC also set the maximum rates that could be charged on the mortgages which at that time was 6%. This ceiling was eliminated in 1969.

Here’s timeline of some of the note-worthy changes:

• In 1966 existing homes became eligible for insurance under the NHA.
• In 1969 lenders were allowed to reduce the minimum term on a mortgage from 25 years to 5 years. Shorter terms were then allowed in 1978 and then 1980.
• Variable rate mortgages only became eligible for mortgage insurance in 1982.
• In 1992, 95% financing was introduced for first time homebuyers only and that restriction was removed in 1998.
• In 1995 GE Capital entered the mortgage insurance market and in 2002 introduced their Alt-A business-for-self program.

From 2008 until the fall of 2016 there were other big changes to insured mortgages including:

• Amortizations being reduced to 25 years from 40 years
• The elimination of zero down payment programs
• The maximum amount you can borrow for a refinance changing to 80% of the value of the property. Reduced from 95%.
• Insurance is now only available on properties with a value less than $1 million.

And in the Fall of 2016 even more changes were introduced in particular affecting high ratio insured mortgage.

• Introduction of the Mortgage Stress Test – all borrowers with less than a 20% down payment are required to qualify at the Bank of Canada rate regardless of the contract rate of the mortgage. That rate today is 4.64%
• Mortgage refinances can no longer be insured which reduces options available to borrowers as many lenders will not longer be able to competively offer this product.
•  Low ratio portfolio insurance is no longer available for refinances, rental property purchases, stated income products, maximum amortizations being reduce to 25 years from 35 years and properties that are valued over $1 million. Many lenders used this program and the result will be a higher cost of borrowing for consumers.

Mortgage insurance options will no doubt change again according to market conditions whether it be the requirement for higher down payments or higher insurance premiums but the available options have definitely changed for the better with the introduction of mortgage insurance allowing more Canadians the choice of home ownership.