The Canada Mortgage and Housing Corp. (CMHC) is supposed to make it easier for Canadians to purchase homes, but the same organization is tasked with keeping the housing market reliable and stable. Sometimes these two goals come into conflict with each other, and that can make it hard for new families and others with tighter budgets to find the right mortgage and purchase their first home.
In 2012, and on three prior occasions since the “housing bubble” in the United States burst in 2007-2008, the CMHC has changed the rules for borrowers hoping to qualify for a CMHC-backed mortgage. Buyers who meet certain criteria are eligible for mortgages with as little as a 5% down payment towards their home, though they are required to pay mortgage insurance premiums to the CMHC until they have paid off 20% of the mortgage total. The rule changes have made it harder for many buyers to qualify for these low-down payment loans, meaning they must either find a traditional mortgage with a 20% down payment of must forego purchasing a home.
One of the changes made in the past few year was the reduction of the maximum amortization period for a CMHC-guaranteed loan—the “life” or timespan of a mortgage—from 30 years to 25 years.
“A five-year decrease in the amortization period has the same effect as a one-point rise in interest rates, explains Will Dunning, chief economist with the Canadian Association of Accredited Mortgage Professionals. “That made a lot of people delay buying if they had to save for a much larger down payment.”
Bigger mortgage payments or down payments might have delayed home buying for many, but that isn’t the whole story. Check back for Part Two of this article to learn more about how Canada’s changing mortgage policies might affect you.