How to Get Around the Harsh New Mortgage Rules in Canada

Why did these mortgage changes in Canada happen?

Evan Siddall, president and CEO of the CMHC, explains the changes are meant to steady the economy in the age of the coronavirus by controlling debt and protecting lenders from people who pose a high risk of defaulting.

While the rules will sting for some people trying to crack their way into the real estate market, they could be a boon for others. By reducing the number of buyers, the crown corporation hopes to quell demand and balance out home prices.

“COVID-19 has exposed long-standing vulnerabilities in our financial markets, and we must act now to protect the economic futures of Canadians,” Siddall explained in a statement.

“These actions will protect homebuyers, reduce government and taxpayer risk and support the stability of housing markets while curtailing excessive demand and unsustainable house price growth.”

How much home can you afford?

Whether you're hunting for a new home or looking to refinance your mortgage, knowing how much your new loan might cost you is critical. Use our handy mortgage calculator to help you understand what your payments could look like.

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What are the new mortgage rules in Canada?

First, homebuyers seeking a high-ratio mortgage are no longer able to submit a down payment with money borrowed from credit cards, unsecured personal loans or lines of credit. Only “traditional sources” of cash, such as savings, equity from the sale of a house or financial support from relatives, will fly.

Second, the minimum credit score to qualify has jumped from 600 to 680. If you don’t know your credit score, you can check it for free online. If it’s too low, you’ll have to take steps to improve it.

Third, borrowers are now capped at spending 35% of their gross income on housing. That includes the mortgage itself, property taxes and utilities. They're also only able to borrow up to 42% of their gross income, taking into account all of their other loans and credit.

Before, buyers could spend up to 39% of their gross income and borrow up to 44%. That means potential buyers saw their purchasing power cut by up to 12%.

For example, someone with a $100,000 income buying a single-family home could have qualified for a $490,000 mortgage with 5% down before July 1. Now, their limit has dropped to $435,000.

What should homebuyers do?

It’s important to recognize that, if you’re not a risky borrower in the eyes of the CMHC, these changes may not affect you at all.

“They are impacting a subset of borrowers who need mortgage insurance,” says Toronto-based broker Sean Cooper, author of the book Burn Your Mortgage. Even those homebuyers, he says, “still have options.”

You see, the government doesn't care whether it insures your mortgage. It just needs to know your mortgage is insured.

Homebuyers excluded by these changes should look around for a lender that also works with Genworth or Canada Guaranty, the country’s two private-sector providers of mortgage default insurance. Those companies have decided not to tighten their restrictions.

“They are usually lockstep with the CMHC, so this is definitely out of the ordinary,” says Cooper.

So even if the CMHC thinks you’re a bad bet, you'll still find a range of lenders that want your business.

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Is anyone else affected?

The other good news is that the new lending rules don’t impact homeowners who want to take advantage of today’s historically low rates.

“As of right now, the rules haven’t changed for refinancing,” says Cooper. “The fact that Genworth and Canada Guaranty didn’t match the CMHC’s changes makes me think that there’s less likelihood of more changes in the future.”

Today’s rock-bottom rates are predicted to last for at least 12 to 18 months, until the economy starts to stabilize from COVID-19 crisis.

That means there’s no better time to see how much you can save on interest and your monthly mortgage payments. The opportunity to hold on to more cash is especially welcome while the country’s financial outlook remains uncertain, so check to see whether you can lower your rate enough to overcome the cost of refinancing.

Whether you’re buying or refinancing, it pays to shop around and get the best deal.

If you don't have time to hunt for the best mortgage yourself, you can get Homewise to work the market for you, completely free. This online brokerage will negotiate on your behalf with more than 30 big banks and other lenders — including many that don't need to use the CMHC — and it only takes five minutes to apply.