CMHC Rule Changes

It seems like it's that time of the year again, when the flowers bloom and mortgage rules get tightened. This latest tightening of the rules comes from CMHC. The latest rule changes affect mortgage insurance qualifications in two areas: 1) Second Homes 2) Self Employed.

1) Second Homes
Current rules allow Canadians to own two personal residences, allowing you to put 5% down on both properties. Unfortunately, this also let some people to try to bend or break the rules. Some people simply bought investment properties that they declared were personal residences. Others, bought a second property, moved in for a year and then converted the property to an investment property (then repeated it all over again).

The new rules will no longer allow you to have two high ratio mortgages at the same time. You can still own two personal properties but at least one cannot be high ratio.

2) Self Employed
The new rules will tighten the requirements needed by self employed individuals. Currently, lenders allow stated income. New rules require third party verifiable proof of income.

So, how do these rules affect you?
These rule changes will not affect too many people, they simply close some loopholes that people have been exploiting. The rule changes might mean less competition caused by some novice investors pulling out of the market.. A savvy investor will adjust accordingly and move on. The new rules kick in May 30th, but don't be surprised if banks start applying them sooner.


Regards,
Rasam

P.S. As always, consult a mortgage professional to help make a decision that is right for you.