editorialsummary
posted rate, and permit qualification at the true
contract rate associated with the term. Contract
rates on a conventional 10-year term are already
relatively close to the posted rate of 4.64, being
approximately one per cent lower. ere is also
inherent stability in longer-term mortgages, as
borrowers do not experience fluctuations in
mortgage payments as interest rates change. is
means that stress-testing borrowers of longer-
term mortgages is not necessary, and exempting
them from the mortgage rules would help the
government meet its mandates to make housing
more affordable and strengthen the middle class.
Note that Canada is unusual in its lack of
availability of longer-term mortgages in the
mortgage market. e majority of mortgages in
the U.S. (and numerous other countries) are for
terms of 15 or 30 years. Economic stability can
be achieved by providing mortgage borrowers
with a greater array of term options, including
long-term mortgages.
Recommendation 2: Permit first-time
homebuyers to amortize insured mortgages over
30 years instead of 25. A one-time exception to
the 25-year amortization rule for first-time buyers
would balance the need to make homeownership
affordable with the need for Canada to have a
stable economy. First-time buyers have the most
significant challenge in affording housing; they
may be just starting out in employment, with
limited income to both save for a down payment
or make monthly mortgage payments.
Recommendation 3: Modify the
requirement of limiting amortizations on
insured mortgages to 25 years, by enabling
borrowers with a loan-to-value ratio of 70
per cent or less to amortize up to 30 years.
Borrowers with loan-to-value ratios of 70 per
cent or less are low risk; thus, making them
qualify with more stringent requirements
serves a negligible benefit and poses little
risk to economic stability.
Recommendation 4: Exempt all insured
mortgages with principal amounts of $499,000 or
less from the requirement to qualify borrowers
at the Bank of Canada's conventional five-year
fixed posted rate, and permit qualification at
the true contract
rate associated
with a five-year
fixed term.
Many lenders will only lend in rural or smaller
urban areas of Canada, using portfolio-insured
mortgages; as a result, the new rules will dis-
proportionately impact homeowners or potential
borrowers hoping to acquire housing in smaller
markets. is exemption would help ensure
affordability in areas outside of major city centres,
where escalating house prices are not an issue.
Predictions are for more mortgage rules
– or, perhaps more accurately, modifications
to the rules – to come. Also, as was recently
announced, Ottawa has unveiled plans to
introduce a deductible into Canada's taxpayer-
backed mortgage insurance system – a
move that could force the country's financial
institutions to shoulder more of the risks of
high-ratio insured deals. is could further
cripple the monolines that mortgage brokers use
for the bulk of their first-mortgage fundings.
We await further outcomes of the CMHC
consultation on housing affordability, and how
the provincial parties scrap it out by proposing
new measures to tackle housing issues.
(1) See Bank of Canada Review Winter 2011-2012: BankofCanada.
ca/wp-content/uploads/2012/02/review_winter11-12.pdf
(2) TradingEconomics.com/canada/home-ownership-rate (3)
TradingEconomics.com/canada/home-ownership-rate (4) See RBC
Report on Housing Trends and Affordability, June 2016: RBC.com/
newsroom/_assets-custom/pdf/20160622-ha.pdf (5) See BCREA
economist Cameron Muir's analyses at BCREA.bc.ca/docs/economics-
forecasts-and-presentations/millennials-bear-the-brunt-of-fed-policy-
changes.pdf
CMB MAGAZINE cmba-achc.ca fall 2016 | 9
