New CMHC Rules

Finance Minister Jim Flaherty outlined new rules effecting CMHC

  • Maximum amortization is 25 years
  • Maximum refinance LTV is 80%
  • Maximum GDS is 39% and TDS is 44%
  • Maximum purchase price is $1 million

The changes will become effective July 9, 2012. (real deals must be approved by this date)

Discussion: The reduction in amortization combined with the lowered GDS ratio could affect a number of people’s ability to qualify. It will also decrease their desire to buy. Historically, the TDS of TNM clients is around 32%. However, 5% of clients do have 40+ GDS.

We do very few refinances at 85% and thus this will have virtually no effect on us. I imagine this is true for the entire indusrty.

The maximum purchase of $1 million could be the largest hindrance to the market. Due to the reduced ability of clients to get financing on these more pricey homes we will likely see a drop in those home values. Furthermore, lenders will be very hesitant to go to 80% for fear of the loss of liquidity in the higher end market. I would imagine that lenders will place a self-imposed 75% LTV cap on the larger mortgage sizes.