Will CMHC Mortgage Regulations Affect Real Estate Investors?
CMHC Mortgage Regulations to Restrict Real Estate Investment
I’ve been hearing rumours recently that CMHC was changing their
financing criteria for real estate investment properties.
Over the last couple of weeks,we’re heard about raising the minimum
downpayment (New Mortgage Rules for Real Estate Investment in Canada)
that an investor would need to put down on a rental property (that wasn’t
owner-occupied, meaning the owner or a close relative was living there),
and that rates will be heading up come July 2010 (Interest rate updates
from a mortgage broker).
This week I’ve learnt that CMHC is also likely planning to, effective April 19,
2010, change things a whole lots more.
Currently when you buy a rental property, CMHC will allow you to use a
80% rental offset, which means that they used to take 80% of the gross
rental income that the income property generated, and subtract that from
the borrowers total debt, to establish the total debt service (TDS) ratio.
What that means is that you don’t have to have the household income to
cover 100% of the value of the rental property, like you do with a home you
live in, because the bank will let you offset the debt using 80% of the
revenue the rental produces (does that make sense?).
They’re tentatively changing this amount to 50%, which makes it much
tougher for people to qualify for investment properties, but the real kicker is
CMHC is also changing how they evaluate the current debt and income on
your existing rental portfolio – they are treating the rental income here the
same as other non-salaried income too, meaning your current portfolio,
while it generates cash flow every month, might hinder the growth of your
portfolio going forward.
We also think that most lenders are going to adopt these standards, even
for non high ratio loans that are not CMHC insured, just to be cautious.
If you qualify under today’s standards for a loan for 1 or 2 townhouses
that you planned to rent out and hold as long term assets, come april 19,
you may no longer qualify for them. Let’s talk before then so you know
all of your options.
PS – if we have an agreement of purchase and sale (a real estate contract)
dated before april 19, and the mortgage is approved, the rental property
can close after (they may set a timeframe, contact me for full details). You
don’t have to complete the purchase by april 19, just have the contract
written and accepted.
If you’d like to talk to a mortgage broker to explore your options, I can
recommend one who does a lot of work with real estate investors.
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Benjamin Bach, Sales Representative
Director, KW Commercial
a division of Keller Williams Golden Triangle Realty
519 772 4376 direct | 519 772 4377 fax
9-871 Victoria Street North Kitchener, ON N2B 3S4 | 519 570 4447
Not intended to solicit anyone or properties under contract to another