Homeowners who are in the midst of a purchase of a home over $1 million best finalize their deal soon if they need mortgage insurance through CMHC. After July 31st, Canada Mortgage and Housing Corporation will no longer offer mortgage insurance for homes that cost $1 million or more, even if the buyer has a deposit of 20 percent or more. They have also limited the amortization period of their mortgages to a maximum of 25 years. Not 35 as was available in the past.
In truth, this move is no surprise to those in the mortgage sector. Changes started worldwide back in 2008 when the financial crisis was at its worst globally. The G20 called the Financial Stability Forum, of which Canada was a part. As a result, Finance Minister Joe Oliver was given the power to oversee CMHC back in 2012. With a mandate to lower the potential risk to the taxpayer in the event of an economic downturn.
As well, back in September 2013, the International Monetary Fund issued a report suggesting that Canada should consider phasing out insuring home mortgages through CMHC. The reasoning for this was that they believed that the banks were benefitting from government-backed mortgages. Banks tended to lean towards funding mortgages with the reduced risk of default insured by a government body. As a result, banks did not diversify into other types of loans. The IMF claimed that this gave a false sense of security in the financial marketplace. By April 2014, all three Canadian mortgage insurers received new guidelines from the Office of the Superintendent of Financial Institutions.
CMHC implemented changes to “increase market disciplines in residential lending while reducing taxpayers’ exposure to the housing sector through CMHC”. They also came forward and said that they supported the Harper government’s efforts to restrain the growth of mortgage insurance backed by taxpayer’s money.
CMHC also announced that effective immediately loans used to finance construction of multi-unit condominium projects are no longer available.
Once again, this move is not a big surprise as funding for condominium construction is well-served by the marketplace and so the need was low. Insurance through CMHC is still available for those who want to buy a condominium.
There has been some buzz in the mortgage industry about CMHC’s roll in the future and whether the government is justified in being in mortgage insurance at all. The steps laid out by the Office of the Superintendent of Financial Institutions are considered the minimum steps. Many speculate there are more changes in the wind for CMHC.
If you have questions about mortgage insurance in Canada and would like to speak to a mortgage professional. You can contact us here for a free consultation.