On October 3, 2016, the Government of Canada announced new rules for government-backed mortgage loan insurance. The new rules include the application of a mortgage rate stress test to all insured mortgages, and changes to low-ratio mortgage loan insurance eligibility requirements.
Below you will find additional details on how the mortgage rate stress test applies to high ratio transactional insurance.
In addition, the Government announced changes to align mortgage insurance eligibility requirements for high and low ratio loans. CMHC will issue further information shortly regarding the measures affecting low-ratio insurance.
Application of the Mortgage Rate Stress Test for High Ratio Loans Submitted for Transactional InsuranceEffective, October 17, 2016, all high ratio insurance applications must comply with the new mortgage rate stress test requirement. The mortgage loan to the borrower(s) must be qualified for a loan using an interest rate which is the greater of the contract interest rate, or the Bank of Canada’s conventional five-year fixed posted rate. The mortgage rate stress test must be applied at the time of mortgage loan insurance application. The Gross Debt Service (GDS) and Total Debt Service (TDS) ratios submitted must reflect the mortgage rate stress test going forward.
The new mortgage rate stress test does not apply to grandfathered loans. Applications may be grandfathered if one of the three following conditions apply:
- A mortgage loan insurance application is received before October 17, 2016;
- The lender made a legally binding commitment to make the loan before October 17, 2016; or
- The borrower entered into a legally binding agreement of purchase and sale for the property against which the loan will be secured before October 17, 2016.
These changes do NOT apply to existing loans that were insured before October 17, 2016, provided the loan continues to be administered by an Approved Lender in accordance with CMHC’s terms and conditions of insurance