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Back in 2006, Canadian mortgage insurers announced that they would be insuring 40-year mortgages in an effort to help more Canadians afford a home while expanding their choices.
While it did help Canadians get the homes they wanted, the math showed it would dramatically increase the cost of a mortgage over its lifetime. CMHC contended the new mortgage would draw the most marginal of homebuyers into the market, setting the system up for much grief if the economy wobbled. And when the U.S. subprime mortgage mess created an avalanche of foreclosure horrors, their visions became the conventional thinking.
The Canadian Government has every reason to draw back from 40-year mortgages in light of the happenings south of the border. The Canadian economy as a whole will benefit from more strict guidelines.
The changes that mean lower the maximum length on government-insured mortgages from 40 years to 35 years and demand consumers have at least a 5% down payment.
Although currently, homebuyers can get government-backed insurance on mortgages, in which the loan-to-value ratio is up to 100 per cent. Under this scenario, the buyer has borrowed all the money for a home, and is covered by insurance for the entire amount.
However, under the new scheme, homebuyers could still borrow the five per cent down payment - but it won't be insured.
According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), 37 per cent of new mortgages last year were for terms of longer than 25 years.
Canadian banks and other lenders, meanwhile, haven't written many government-backed mortgages to borrowers with low credit scores, says the government. But to ensure this continues, the new changes will establish a credit score floor of 620.
Also under the new rules:
- Mortgages that begin with "interest-only" payments and home equity lines of credit will also not be covered by the government guarantees.
- There will be a set maximum of 45% for the proportion of gross income spent on debt servicing and housing-related fixed or essential payments.
It is still possible to apply for the 0% Down Mortgage
We work with an Selfuninsured "Alternative Lenders", that are not subject to the same policies and programs as lenders who provide government-backed mortgage loan insurance through public or private insurance companies in Canada.
What this means that self-insured lenders are not affected by recent government announcements regarding changes to mortgage financing guidelines.
Let's Review:
- 40 year amortization will continue until further notice
- minimum credit score remains 540
- credit guidelines are not being impacted by government announcements
- maximum LTV has not been affected (Up to 100% financing and 90% for Business For Self)
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