A third of insured mortgages would have ‘difficulty’ under new federal rules, Genworth says

The largest private residential mortgage insurer in Canada says many of its customers would have difficulty meeting new rules introduced by the federal government this week.

Based on data accumulated so far this year, Genworth MI Canada Inc. estimates that more than one-third of insured mortgages, predominantly acquired by first-time homebuyers, would have difficulty meeting required debt-service ratios.

Genworth said in a release that those homebuyers would need to consider buying a lower priced property or increase the size of their down payment in order to meet the new federal requirements, which were brought in with the aim of cooling off overheated housing markets.

Under the federal rules, which will come into effect on October 17, all insured mortgages will have to go through a “stress test” that ensures a borrower’s ability to make their mortgage payments at a higher interest rate.

Borrowers will be tested against their ability to pay their mortgage if actual rates were as high as the big banks’ five-year posted mortgage rates, which the Bank of Canada says currently average 4.64 per cent.

Currently, only high-ratio insured mortgages, those with a down payment of less than 20 per cent of the purchase price, are subject to a stress test. 

Genworth also said that approximately 50 to 55 per cent of its total portfolio new insurance written would no longer be eligible for mortgage insurance under the new low-ratio mortgage insurance requirements.

Ottawa’s move to change the mortgage insurance rules came as it also said it will close a loophole in the tax laws that allows non-residents to buy homes in Canada and then get a tax exemption to avoid paying capital gains when they sell the home by claiming it as a principal residence.

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