GTA North

Understanding the new federal mortgage lending requirements

Earlier this year, the federal government introduced new lending criteria for government-insured (high-ratio) mortgages. The intent of the change is to help ensure homeowners can afford their home if interest rates rise.

With a conventional mortgage, you need a minimum down payment of 20 per cent of the purchase price. High-ratio mortgages are available that can reduce your down payment requirement to as little as five per cent of the purchase price. This type of mortgage requires mortgage loan insurance that is obtained through the Canadian Mortgage and Housing Corporation (CMHC) or private mortgage insurers.

What this means to you

Homebuyers seeking a high-ratio fixed rate mortgage with a term of less than five years or a high-ratio variable rate mortgage of any term must now qualify for a five-year fixed rate mortgage, even if they choose a mortgage with a lower interest rate and shorter term. Buyers would still pay the rate in effect for the mortgage selected.

For conventional fixed rate mortgages with a term of five years or longer, the actual contract interest rate would be used for qualification.

Find out how much you can afford

Pre-qualifying for a mortgage will help you set realistic expectations when shopping for a new home. The process also will tell you the maximum amount you can afford to pay for a home.

If you’re buying a home or renewing your mortgage, as your financial security advisor, I can refer you to a mortgage planning specialist who can help you find a mortgage that works for your individual situation.