Pay out Penalties Explained
This is a very good explanation and can really bring to light higher point payout penalties with the 6 major banks vs. the lower payout penalties with the many lenders available in the broker channel.
CMHC Tightens its Mortgage Rules, Impacting First-time Buyers
Breaking News: Effective July 1st the mortgage rules are changing again and this time it’s big time! Regarding CMHC insured mortgages (mortgages with a down payment less than 20 percent). They’re lowering the allowed debt ratios & increasing the required credit scores. Other changes to be announced.
Bottom line is if you have been thinking of buying a home and are close to the max debt ratios or may have a lower credit score you should act now and act fast.
Contact us today for more information, or click “home” and start an online application by clicking “secure your best rate”
- CMHC’s new debt-ratio policy will cut homebuyers’ purchase power by up to 11%. For example, someone earning $60,000 with no other debt and 5% down could afford approximately 10.9% less home under CMHC’s new rules. That’s like jacking up the minimum stress test rate from 4.94% (where it lies today) to 6.30%!
- In a report tonight by RBC Capital Markets, Genworth and Canada Guaranty reportedly indicated that the choice to adopt any/all of CMHC’s changes is theirs. CMHC’s policies were not an industry-wide mandate by the Department of Finance.
- Insured borrowers currently account for roughly 20% of new mortgages. A top insurer executive once told us that credit score, loan-to-value and geography all predict defaults on these loans better than debt ratios.
- 20% of down payment funds from first-time buyers came from borrowed sources, according to a Mortgage Professionals Canada survey in February. Yet, only 2% of down payments for CMHC-insured borrowers with loan-to-values above 90% were from “non-traditional sources” like unsecured credit and loans.
- CMHC’s rule-tightening could cost it 20% of its business, say analysts. It could eventually lose its decades-long status as market share leader in the Canadian default insurance market.
- Liquidity is key if home values dive. Yet, CMHC’s decision today may shift more of its business outside of big urban areas and into less urban and less liquid real estate markets. That’s because borrowers in Greater Toronto and Vancouver generally have higher debt ratios— and borrowers with higher debt ratios and less than 20% down payments would choose Canada Guaranty or Genworth by default, since they’re the only games left in town.
What Will This Do to the Housing Market?
Sixty-one percent of first-time buyers buy with less than 20% down (i.e., get an insured mortgage), according to data from Will Dunning and Mortgage Professionals Canada.
How they’re affected and the fallout from CMHC’s move depends on whether:
- Private insurers impose the same rules
- This would limit all options for borrowers who don’t have 20%+ for a down payment and don’t qualify with CMHC
- Big 6 banks, which dominate prime-mortgage lending in Canada, eventually harmonize their low-ratio mortgage guidelines with these new insured mortgage guidelines from CMHC
- If so, the change could have a broader impact on borrowers
- CMHC will impose its changes on all insured mortgages that are securitized (i.e., sold to investors). CMHC runs Canada’s mortgage securitization business, with direction from the Department of Finance.
Info via: ratespy.com
For everyone who is interest in the new loan that CMHC is offering for your down payment, this is a news release that gives details and is scheduled to come into effect September 1st 2019. Please contact us if you have any questions or concerns!
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