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Richard Pike
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CMHC Self-Employed Policy Changes
Mortgage loan insurance applications submitted to CMHC on or after April 9th, 2010 will include different criteria for self-employed borrowers without traditional third-party validation of income.

BriefingWire.com, 3/10/2010 - Clarification on Qualifying Interest Rate

for April 19th Changes:

Mortgage loan insurance applications submitted to CMHC on or after April 9th, 2010 will include different criteria for self-employed borrowers without traditional third-party validation of income.

CMHC is reducing the maximum LTV for the Self-Employed Product Without Third-Party Validation of Income as follows:

For purchase and portability transactions, the maximum LTV is being reduced from 95% to 90%

For refinances, the maximum LTV is being reduced from 90% to 85%

The CMHC Self-Employed Product Without Traditional Third-Party Validation of Income is intended for self-employed borrowers who have difficulty providing documentation for their current income level. Typically, these are borrowers who recently became self-employed.

Accordingly, self-employed borrowers who have been self-employed in the same business for more than three years will not be eligible under this product. CMHC continues to require that the borrower have a minimum of two years of experience in the same field. This can include time spent working as a non-self-employed worker in the same field.

As CMHC has found that commissioned income can be relatively easily substantiated, borrowers who earn income through commission will no longer be eligible for the CMHC Self-Employed Product Without Traditional Third-Party Validation of Income.

Clarification on Qualifying Interest Rate

On February 16th, the government announced new parameters regarding the application of the government guarantee supporting the mortgage insurance industry, but did not stipulate the rules around qualifying interest rates. Effective April 19th, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with an LTV greater than 80% as follows.

Fixed-Rate & Variable-Rate Mortgages

For loans with a fixed-rate term of less than five years and for all variable-rate mortgages, regardless of the term, the qualifying interest rate is the greater of:

The benchmark rate

The contract interest rate

For loans with a fixed-rate term of five years or more, the qualifying interest rate is:

The contract interest rate

Mortgages with Multiple Interest Rates (eg, Multi-Component Mortgages)

Each component must be qualified using the applicable criteria defined above.

CMHC defines the benchmark rate as the Chartered Bank – Conventional Mortgage Five-Year rate that is the most recent interest rate published by the Bank of Canada in the series V121764 as of 12:01am (ET) each Monday, which can be found at: www.bankofcanada.ca/en/rates/interest-look.html

 
 
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