CMHC Changes to Alberta Mortgage Rules in 2021
Effective July 1, 2020, the Canada Mortgage and Housing Corp (CMHC) announced tighter qualification rules for higher-risk borrowers. This move was made in order to protect the lender in the case of a mortgage payment default. A “higher-risk borrower” is typically a homebuyer with less than 20% of a home down payment.
Of the changes introduced by CMHC, homebuyers with less than 20% home down payment will have to watch out for:
- A minimum credit score of 680, up 80 points from the previous requirement. If a couple is in the market for a home, at least one of the applicants must have a credit score of 680 or higher.
- Lower debt ratio thresholds. The new maximum gross debt ratio is limited to 35% (down from 39%). The maximum total debt service ratio is limited to 42% (down from 44%). This means potential homebuyers will need to show that they require smaller percentages of their income to pay off debts.
- No longer treating non-traditional sources of down payment as equity for insurance purposes. Borrowed funds will no longer count towards a down payment. It will also not count as equity when considerations are being made for the mortgage default insurance.
While it’s true that CMHC rules are tighter, it’s important to remember that CMHC is only one of Canada’s mortgage insurers. Two private sector counterparts have confirmed that they will not be following suit. These private mortgage insurance companies may in fact provide more flexible assistance if you’re looking for an Alberta mortgage.
No Rate Hikes Predicted for Alberta Mortgages in 2021
After a turbulent year, it could be wise to take predictions and forecasts with a grain of salt. The Bank of Canada has stated that the prime rate won’t climb until 2023. They have said that they may even have to consider a cut of 10 to 15 basis points if lockdowns continue to stall economic recovery.
With the roll-out of vaccinations not expected to reach most of the general public until mid to late 2021, it’s unlikely that there’s potential for a rate hike for the year. Historically, the Bank of Canada starts increasing rates within one to two years of hitting the bottom overnight rate.
Rising Real Estate Prices for Detached Homes
Despite predictions that real estate prices would dip during the pandemic, the market has defied expectations. Rather than deflate, the prices for detached homes have increased. This trend can be directly linked to the pandemic as demand increases as more people work from home. With more cases in populated city centers, many people are also opting to move to smaller communities nearby.
With the exception of condos, experts are forecasting an increase in all housing types by about 4 to 7%. It’s predicted that condo prices in downtown urban centers will falter during the first half of the New Year. With remote learning becoming more prevalent for university students and the fall of the short term rental market, condos will be in lower demand. Industry professionals believe that this will weigh on condo prices for the first half of the year before stabilizing in the second half of 2021.
A Year to Watch for Getting an Alberta Mortgage
With the global situation quickly changing due to the pandemic, 2021 will be a year to watch when it comes to getting a mortgage. Whether you’re looking to purchase your first home or looking for a new space, let Mortgage Design Group Inc. help guide you through the process.
With a team of knowledgeable brokers and industry experts, we’re ready to get to work for you! We take pride in being able to curate all the best products on the market and make the dream of home ownership into a reality. With our world-class service and simple, efficient process available online, you can access all we have to offer from the comfort and safety of your own home. Talk to us today and let us help you take a step towards your home goals in 2021!