In a contribution piece for the Toronto-based blog Move Smartly
, mortgage broker Dave Larock noted that the large proportion of low-ratio portfolio-insured loans at present (approximately 35 per cent of the nation’s total outstanding residential insured mortgages) has made it a prime target for federal interventions aimed at cooling the Canadian housing market.
“Until now, the rules for insuring low-ratio mortgages have been more lenient than those used for high-ratio mortgages, in recognition of the fact that low-ratio loans have more paid-in equity, which makes them inherently less risky. But after November 30, the qualifying rules used to underwrite portfolio-insured low-ratio loans will be the same as those that are used to underwrite insured high-ratio loans,” Larock wrote.
Under the revised regulations, maximum amortization will be cut down by a decade to 25 years. Refinances, rental properties, and mortgages valued at over $1 million will also be no longer be eligible for low-ratio mortgage insurance.
“[When] these types of mortgages and features are no longer eligible for low-ratio mortgage insurance, lenders’ costs to fund these types of loans will rise, and the lenders will, of course, recover these increased costs by charging higher interest rates to their borrowers,” Larock warned.
“In fact … several have suspended lending on rental properties altogether, and these announcements are expected to continue over the coming weeks.”
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Low-ratio borrowers will bear the brunt of the tighter measures introduced last week by Finance Minister Bill Morneau, according to an industry observer.