CMHC Changes – A Summary

On Thursday, June 4th, CMHC (Canada Mortgage and Housing Corporation) announced changes applicable to new applications for homeowner transactional and portfolio mortgage insurance, effective July 1st, 2020.

The changes include:

  • No longer allowing homebuyers to use borrowed funds for their down payment
  • Requiring a higher credit score (from 600 to 680) from at least one borrower
  • Lowering the threshold for how much debt applicants can carry compared to their income

To measure debt, lenders use two key metrics: the gross debt service ratio (GDS) –  which is the share of income used to cover the mortgage and other housing costs like property taxes, and the total debt service ratio (TDS) –  which is the share of income used to cover housing costs plus the cost of servicing other debts. The changes have lowered the maximum GDS from 39% to 35%, and the maximum TDS from 44% to 42%.

Banning borrowed funds to finance down payments will have a big impact on many First-Time Home Buyers, as many rely on borrowed funds from family members to enter the real estate market.

It is important to note that mortgage insurance is required if you want to buy a home with a downpayment of less than 20%. This insurance will protect a lender in the event of default.

To further manage the risk of their insurance business, CMHC also suspended refinancing for multi-unit mortgage insurance except when the funds are used for repairs or reinvestment in housing.

For more information, please visit the CMHC website at:

https://www.cmhc-schl.gc.ca/en/media-newsroom/news-releases/2020/cmhc-reviews-underwriting-criteria