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Effective 11:59PM on August 16th, 2020, Canada’s Mortgage Stress Test rate will fall to 4.79% from the current rate of 4.94%. This will allow borrowers the ability to qualify for a slightly higher mortgage amount. Five-year posted mortgage rates at Canada’s big banks have inched lower in recent weeks, enough to compel the Bank of Canada to formally lower the rate. That testing rate has already been lowered twice throughout the COVID-19 pandemic, first in mid-March when it dropped 15 points from 5.19 per cent to 5.04, and then again in May when it dropped another 10 points to 4.94 per cent.

For more information on how this change can affect your ability to qualify, speak with one of our mortgage specialists by clicking HERE

Mortgage insurance, better known as mortgage default insurance is a mandatory requirement for “high ratio” mortgages (mortgages with a down payment under 20%). The purpose of mortgage default insurance is to protect the lender in case of borrower default and foreclosure on the property. Depending on the amount of down payment the borrower puts on their property, high ratio mortgage default insurance premiums can range anywhere between 2.8% and 4% of the purchase price of the home. In Canada, there are 3 mortgage default insurance providers: the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial, and Canada Guaranty. The Canada Mortgage and Housing Corporation is a crowned corporation (owned by the government) while Genworth Financial and Canada Guaranty are both private corporations.

Lenders will always deem mortgages that are insured as less risky and as a result will offer lower interest rates to borrowers. The following criteria needs to met in order to qualify for mortgage default insurance:

• Maximum amortization period allowed on insured mortgages is 25 years
• If the purchase price exceeds $500,000 (and is below $1 million), a higher down payment is required. The minimum down payment in this case changes to 5% on the first $500,000 and 10% on the remaining amount. For example, on a $800,000 house, the down payment would be (5% of $500,000) + (10% of $300,000) = $55,000
• If the value of the home exceeds $1 million then a 20% down payment has to be put down towards the purchase.

How Much Is The Mortgage Insurance Premium?

Mortgage insurance premiums for conventional mortgages (which have less than 80% Loan To Value) are between 0.60% to 2.40% of the property value while high-ratio mortgages (which have over 80% Loan to Value) insurance premiums are between 2.80% to 4.00%. For high ratio purchases, the mortgage insurance premium is automatically added to the mortgage amount and is paid by the borrower over the lifespan of the mortgage. Mortgages that are up for renewal and are under 80% Loan to Value can be insured by the lenders with discounted mortgage rates offered as a result. Speak with an Easy Mortgage Broker today to take advantage of the lowest possible mortgage rates you are eligible for.

On July 1, 2020 it will be harder for Canadians to qualify for an insured home purchase mortgage due to changes announced June 4th, 2020 by the Canada Mortgage and Housing Corporation (CMHC). If you’re looking to purchase a home with less than 20% down the following underwriting rules have changed:

1. The minimum credit score will rise to 680 from the current 600
2. All non-traditional sources of down payment that increase indebtedness (leveraged) will no longer be treated as equity for insurance purposes
3. The maximum gross debt service (GDS) ratio will drop from 39 to 35
4. The maximum total debt service (TDS) ratio will drop from 44 to 42

These rule changes come as a result of bleak predictions resulting from the COVID-19 pandemic, that house prices will drop between 9 to 18 per cent within the next 12 months. Therefore, to help reduce the risk and protect future home buyers, CMHC has implemented these new changes to it’s underwriting policies for insured mortgages.

Having a minimum credit score of 680 has been a requirement for many lenders thus far, but potential home buyers will feel a significant decrease in borrowing capacity due to the reduction in debt servicing ratios. For example, a family with $100,000 household income could qualify for a $475,000 mortgage under the current criteria. To put things into perspective, the same family would only qualify for a mortgage of approx. $410,000 on July 1.

Fortunately, the two other private mortgage insurers, Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co., are still qualifying home buyers with less than a 20% down payment using the same ratios and qualification guidelines as before. There is no mention that they will be following in suit of CMHC. Speak with one of our experienced mortgage strategists at Easy Mortgage today by calling us at (647) 660-1129 or contact us via email at info@easy-mortgage.ca and we will work hard to make sure you can purchase your dream home.

Additional Resources:

• CMHC News Bulletin Link: https://www.cmhc-schl.gc.ca/en/media-newsroom/news-releases/2020/cmhc-reviews-underwriting-criteria

The Bank of Canada kept its benchmark interest rate steady at the effective lower bound of 0.25 percent on June 3rd 2020, as widely expected. Policymakers noted that the COVID-19 pandemic hit output and employment, but fiscal actions combined with lower interest rates are helping economic recovery. This is good news for mortgage borrowers since rates are being held very low.

As the Canadian economy starts on its path to recovery, many homeowners might be enticed to take advantage of the historically low mortgage rates currently being offered. Now is a great time to speak with an Easy Mortgage Broker to see if we can help your cash flow by refinancing at these extremely low rates. Those looking to purchase a home will also be able to take advantage of these rates for the time being until we see economic recovery from COVID-19, at which point the rates will most likely go back up.

The next interest rate announcement is scheduled on July 15, 2020.

Additional Resources:

• Bank of Canada Announcement: https://www.bankofcanada.ca/2020/06/fad-press-release-2020-06-03/?fbclid=IwAR0cyYqxqQyeHkxJ_HYKeuot37oQQcRIzcf18t9Tv1MRR1XatazhZAB6ojY

There are many instances when it makes good financial sense to refinance a mortgage instead of just renewing it for another term. When you refinance your home, we will save you as much money as possible by minimizing the amount of interest you pay. Aside from the financial benefits, you will also increase your credit score by consolidating your debts.

Alternatively, refinancing allows you to access cash from the equity that is available in your home. Whether you need the cash to renovate your property and increase the value of your home, or simply take out money for business or future investments, we will give you a product that is designed for you. An Easy Mortgage broker will consult with you and determine which product is suitable for your financial situation. Products such as Home Equity Loans and HELOCs may be great options when the penalty to break your current mortgage is too high. HELOCs are flexible, allowing you to take out cash as needed, when needed.

There are many variables to consider when looking to refinance your home. For this reason it very important that you work with an Easy Mortgage Strategist who understands your financial situation and can recommend the product most suitable for you.