Under current rules, potential home buyers are required to purchase insurance against their mortgage loan if their down payment is less than 20 percent of the value of the home. Such insurance is intended to protect borrowers in case they end up defaulting on the mortgage. Conversely, any borrower who can pay over the 20 percent threshold can obtain an uninsured mortgage.
Author(s):
published 06/29/2012
Under current rules, potential home buyers are required to purchase insurance against their mortgage loan if their down payment is less than 20 percent of the value of the home. Such insurance is intended to protect borrowers in case they end up defaulting on the mortgage. Conversely, any borrower who can pay over the 20 percent threshold can obtain an uninsured mortgage.
Finance Minister Jim Flaherty recently outlined a series of changes to the rules that govern the Canada Mortgage and Housing Corporation, the crown corporation that insures mortgages (CMHC).
The most significant change is that the maximum amortization period will be lowered to 25 years from 30 years, which will increase monthly mortgage payments for home owners. However, it will decrease the amount of interest paid throughout the term of the mortgage as the number of payments will be reduced.
Another change has been to limit CMHC insurance to homes priced under $1 million. This means that those individuals in the market for a home priced at or over $1 million will not only have to come up with the 20 percent down payment but will also have an uninsured mortgage. In other words, they will need at least $200,000 cash at minimum. Although this change will affect a small percentage of home-buyers, it is likely to have a significant effect.
Finally, the total individuals will be allowed to withdraw when refinancing their homes will be limited to 80 percent of the home’s value. This is a reduction of 5 percent from the current system. This is intended to promote responsible borrowings against homes.
These changes come into effect as of July 9, 2012. Any mortgage approved after June 22 and before July 9 must fund by December 31, 2012.
Written by Leandro Zylberman
DISCLAIMER: This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor client relationship. The views expressed are solely the authors’ and should not be attributed to any other party, including Thompson Dorfman Sweatman LLP (TDS), its affiliate companies or its clients. The authors make no guarantees regarding the accuracy or adequacy of the information contained herein or linked to via this article. The authors are not able to provide free legal advice. If you are seeking advice on specific matters, please contact Keith LaBossiere, CEO & Managing Partner at kdl@tdslaw.com, or 204.934.2587. Please be aware that any unsolicited information sent to the author(s) cannot be considered to be solicitor-client privileged.
While care is taken to ensure the accuracy for the purposes stated, before relying upon these articles, you should seek and be guided by legal advice based on your specific circumstances. We would be pleased to provide you with our assistance on any of the issues raised in these articles.
