Canadian Compliance Group
Canadian Compliance Group

Mortgage Insurance


The federal government has announced further restrictions on the availability of mortgage insurance that could have a direct impact on the types of mortgage loans that a federally regulated institution may make.  The rules will impact both high ratio and conventional mortgages.


With respect to high ratio loans, going forward, for a loan to be eligible for insurance the borrower must be able to qualify for the loan at the greater of the contracted interest rate and the Bank of Canada posted five year fixed interest rate.  As the five-year rate tends to be higher than the rates for lesser maturities, this may exclude some borrowers from qualifying for a mortgage.  The rules also stipulate the maximum gross and total debt service ratios that may be used for the purposes of making the eligibility assessment.  The rates are set at 39 percent and 44 percent, respectively.


While conventional loans need not be individually insured, lenders that obtain insurance on a portfolio of these loans in order to qualify them for sale to a government sponsored securitization program may be impacted by the new eligibility requirements for mortgages covered by portfolio insurance.  Essentially, to be included in a pool, the mortgages must meet requirements similar to those that now apply to high ratio loans, namely:


  • A maximum amortization length of 25 years
  • A maximum property purchase price below $1,000,000 at the time the loan is approved
  • For variable-rate loans that allow fluctuations in the amortization period, loan payments that are recalculated at least once every five years to conform to the original amortization schedule
  • A minimum credit score of 600 at the time the loan is approved
  • A maximum gross and total debt service ratios of 39 percent and 44 percent at the time the loan is approved, calculated by applying the greater of the mortgage contract rate or the Bank of Canada conventional five-year fixed posted rate
  • A property that will be owner-occupied.


The new high and low ratio requirements are subject to phase in rules but will be fully in effect by October 17, 2016 and November 30, 2016, respectively.  We presume that the regulations applicable to mortgage insurers will be amended to reflect the changes.


Lender risk sharing


Not also that the government also announced that it intends to launch a consultation on the existing regime where the government takes on 100% of the risk relating to an insured mortgage.  In particular, the consultation will seek comment on introducing a modest level of lender risk sharing.  The consultation is to be launched sometime this fall at an unspecified date.




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