Just received this clarification from Department of Finance regarding new rules for Government Guaranteed mortgages and thought of sharing it with every one.


Residential Mortgage Insurance and the New Mortgage Insurance Guarantee Framework

The Department of Finance has received a number of questions in response to its recent announcement on adjustments to the rules for Government guaranteed mortgages. To provide greater clarity about these new rules, the following are responses to the most commonly received questions.

Q: When do the new rules take effect?

A: The new rules will take effect on October 15th , 2008. We recognize that this may result in an increase in requests for mortgage insurance approvals on October 14th . For this reason, a complete application received by a mortgage insurer on or before October 14th , but approved subsequent to that day, will qualify for the existing rules. Any mortgage applications received by the mortgage insurer on or after October 15t , 2008 must comply with the new rules.

Q: What do the rules mean for pre-approvals?

A: Pre-approvals are not typically structured as binding commitments to fund the mortgage loan. As such, a loan pre-approved before October 15th will not generally qualify for the existing rules unless the complete mortgage insurance application is received by a mortgage insurer on or before October 14th .

Q: How does this apply to loan commitments issued before October 15th that will close on or after October 15th?

A: The existing rules will apply to loan commitments for which a mortgage insurance application has been received by the mortgage insurer on or before October 14th , 2008, regardless of the closing date of the mortgage loan. This includes new constructions in which the closing may not occur for more than a year after the initial loan commitment was issued. This flexibility does not preclude lenders or insurers from placing their own time limits on unfunded loan commitments.

Q: Will borrowers with mortgage loans approved under the former rules be able to refinance or make use of mortgage insurance portability or switching features without invoking the new rules?

A: Mortgage loans that were approved under the old rules and are refinanced, ported or switched to another lending institution on or after October 15th , 2008, will fall under the new rules if new monies are advanced that are not contemplated under the original terms of the loan and insurance coverage. Where this is the case, the old rules could continue to be applied to the original portion of the mortgage loan, but the new rules would apply to the new portion advanced as part of the refinance, port or switch.

Q: Do the 35 year and five per cent down restrictions apply to conventional mortgages?

A:No. Mortgage loans with loan to value ratios of 80 per cent or less do not fall under these particular parameters. However, those conventional mortgage loans with a loan to value ratio that is less than or equal to 50 per cent will be subject to loan documentation standards, and those conventional mortgage loans with a loan to value ratio greater than 50 per cent will be subject to a restriction on credit score and loan documentation standards.


Q:Are mortgages in the three per cent basket backed by the Government?

A:The Government recognizes that a small percentage of mortgage loans in which the borrower has a credit score below 620, or insufficient history to generate a credit score, may still represent low credit risks that ought to qualify for the Government guarantee. The three per cent basket will qualify for the Government guarantee.


Q: Do all high-ratio mortgage loan applicants have to have a credit score above 620?

A:No, the new rules require that at least one borrower or guarantor have a credit score greater than or equal to 620. This rule is not meant to serve as a substitute for existing standards around credit score thresholds.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

thanks for this

Just to add some thing here. ING, Scotia and some other banks have already stopped offering 40 year amortization and zero down payment and some other lenders are going to follow suit.

If some one wants to take advantage of these products then better hurry as the choice of lenders is going to be very limited soon.

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada