The latest CMHC restricted rules on the second homes

Canada Mortgage and Housing Corp (CMHC) said late Friday April 25, 2014 it will stop insuring mortgages on second homes, effective May 30, 2014. Anyone who has an insured mortgage will no longer be able to act as a co-borrower on another mortgage that CMHC insures. In addition, it will stop offering mortgage insurance to self-employed people who don’t have standard documents to prove their income.

CMHC said it does not expect the new rules to have a big impact on the housing market, but hinted more changes are on the way.

Mortgage insurance is mandatory in Canada for banks issuing mortgages to home buyers with down payments of less than 20 per cent, and changes can have significant effects on home sales. Former finance minister Jim Flaherty tightened the rules that determine which mortgages are eligible for insurance on four occasions in the wake of the financial crisis. He last imposed stricter rules in July, 2012, when he capped the amortization of insured mortgages at 25 years, down from 30. That caused home sales to plunge.

His successor, Finance Minister Joe Oliver, has signaled he wants to play less of an active role in the housing market. Real estate players were hoping that meant rule changes were a thing of the past.

But back in 2012, Ottawa told CMHC it was going to have to start ensuring that its activities contribute to the stability of the country’s financial system. In other words, it should not be selling insurance products that encourage borrowers to take on too much debt and add to the risks in the housing market. CMHC began a review of its business to ensure it is abiding by the new part of its mandate, and this is the “first set of changes” to result, it said.

CMHC doesn’t offering mortgage insurance:

If you own a condo with an insured mortgage and decide to rent it out when you buy a house. You will no longer be able to buy that house with a mortgage that’s insured by CMHC.

Parents who have a mortgage that’s insured will no longer be able to act as a co-borrower for their children on an insured mortgage.

Full article you can read at The Globe & Mail