In response to the Minister of Finance’s announcement Monday that the rules surrounding mortgage insurance are being changed, Genworth Canada issued a statement sharing its thoughts about the changes.
“Today’s announcement by the Minister of Finance demonstrates that housing and the housing finance system remains a top priority for the Government,” said Genworth Canada president and CEO Stuart Levings. “As a key stakeholder, we remain committed to responsible lending practices, while helping first-time homebuyers achieve the dream of homeownership.”
Under the changes, the government will:
- Standardize eligibility criteria for high- and low-ratio insured mortgages, with a mortgage rate stress test planned to gauge a baseline
- Close loopholes surrounding the capital gains tax exemption on the sale of a principal residence
- Consult with the industry on how to better protect taxpayers through balancing the distribution of risk
Effective October 17, all insured homebuyers must qualify for mortgage insurance at an interest rate that is either the greater of their contract mortgage rate or the Bank of Canada’s conventional five-year fixed posted rate (currently 4.64%).
By November 30, mortgage loans that lenders insure using portfolio insurance and other discretionary low loan-to-value mortgage insurance must meet the criteria that previously only applied to high-ratio insured mortgages. Low-ratio mortgages to be insured will need to meet the following requirements:
- A loan whose purpose includes the purchase of a property or subsequent renewal of such a loan;
- A maximum amortization length of 25 years;
- A maximum property purchase price below $1,000,000 at the time the loan is approved;
- For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule;
- A minimum credit score of 600 at the time the loan is approved;
- A maximum Gross Debt Service ratio of 39% and a maximum Total Debt Service ratio of 44% at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate; and,
- A property that will be owner-occupied.
In a statement, Genworth estimated that a little over one third of transactionally insured mortgages, primarily for first-time homebuyers, would have difficulty hitting the required debt service ratios. Homebuyers would likely consider purchasing a lower-priced property or increase their down payment as a result.
The company also expects that approximately 50% to 55% of its total portfolio new insurance would no longer be eligible for mortgage insurance under the new Low Ratio mortgage insurance rules.
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