There have been many changes to insured mortgages over the years. Amortizations have been reduced, premiums have increased and some programs have even been eliminated.
To put things into perspective, I thought it would be interesting to take a look back to how the insured mortgage market has changed in Canada since its inception in 1954 as there have been many changes to the mortgage insurance program since it was first introduced to improve accessibility to homeownership for Canadians.
Prior to 1954 it was extremely difficult to buy a home in Canada unless you had cash. Lending practices were extremely stringent and you needed a minimum 50% down payment and the payments were very high.
The National Housing Act was passed in 1954 which introduced mortgage insurance to Canada. The program compensated lenders if a homeowner defaulted. The other goal was to bring the chartered banks into residential mortgage lending and to reduce dependence on public funds. Prior to this date, life insurance companies had been the largest private mortgage lenders in Canada.
Originally only new homes could be insured under the program and they had to meet NHA housing standards. The target demographic was lower middle income families and all lenders had to be approved by CMHC. CMHC also set the maximum rates that could be charged on the mortgages which at that time was 6%. This ceiling was eliminated in 1969.
Here’s timeline of some of the note-worthy changes:
- In 1966 existing homes became eligible for insurance under the NHA.
- In 1969 lenders were allowed to reduce the minimum term on a mortgage from 25 years to 5 years. Shorter terms were then allowed in 1978 and then 1980.
- Variable rate mortgages only became eligible for mortgage insurance in 1982.
- In 1992, 95% financing was introduced for first time homebuyers only and that restriction was removed in 1998.
- In 1995 GE Capital entered the mortgage insurance market and in 2002 introduced their Alt-A business-for-self program.
Since 2008 there have been other big changes to insured mortgages including: Amortizations being reduced to 25 years from 40 years
- The elimination of zero down payment programs
- The maximum amount you can borrow for a refinance is now 80% of the value of the property. Reduced from 95%.
- Insurance is now only available on properties with a value less than $1 million.
- As of December 2015 there are now changes to the down payment requirements to 10% from 5% for the portion of a home’s value from $500,000 to $1-million.
- In October 2016 the stress test was introduced. All insured mortgages must now be stress tested using the 5-year posted rate (qualification rate)
- In January 2018 the new stress test now requires insured mortgages to qualify using the higher of their contracted mortgage rate plus 2.00% or the 5-year benchmark fixed rate published by the Bank of Canada. With further changes being implemented both in 2020 and 2021 for both insured and uninsured mortgages.
Mortgage insurance options will no doubt change again according to market conditions whether it be the requirement for higher down payments or higher insurance premiums but the available options have definitely changed for the better with the introduction of mortgage insurance allowing more Canadians the choice of home ownership.
If you would like more information on mortgage insurance in Canada please give me a call at 1-888-561- 2679 or email [email protected]???????
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.