40 Year Mortgages Available in Canada . . . Until October 15th
23 July, 2008 / by Bryan Jaskolka
Mortgages in Canada with 40 year amortization periods are still available. Yet, after new rules for federal backing of mortgage insurance come into effect on October 15th, it is most likely that 40-year mortgages and zero-down payment mortgages will no longer be commercially available. Already a number of the major banks and other financial institutions have stopped pre-approving 40-year amortizations in anticipation of changes to the federal Finance Department’s new mortgage insurance requirements that will take effect in the Fall.
AIG United Guaranty Canada, one of a handful of private mortgage insurance firms that are approved to insure high-ratio Canadian mortgages, recently announced that it will no longer write policies for mortgages with 40-year extended amortizations after October 15th. The Canadian Mortgage and Housing Corporation, a federal Crown corporation and Genworth Financial a private insurer have already announced they will bring their insurance standards in line with the new federal regulations when they take effect. This leaves PMI Mortgage Insurance Company Canada as the only mortgage insurer that has left the door open to insuring 40-year and zero-down mortgages after the October 15th cut-off date. PMI is apparently scheduled to meet with Department of Finance officials at the end of the month to discuss the new restrictions and potential alternatives such as federal backing of 95% of a zero-down mortgage and private backing of a 5% second mortgage.
Nonetheless, despite PMI’s reluctance so far to publicly announce the end of insuring 40-year and zero-down mortgages, it seems highly probable that this avenue will also be closed to home buyers after October 15th. With a narrowing window of opportunity, and a diminishing pool of lenders willing to approve extended amortization mortgages, purchasers who wish to take out a 40-year mortgage or proceed with zero-down financing prior to the October 15th cutoff date would be well advised to consult with their mortgage broker to shop for the best deal from the lenders that are still offering these options.
(Under the Bank Act mortgage insurance is required for mortgages written by Canadian banks and other federally regulated financial institutions where the down payment made is less than 20% of the purchased property’s value. Last year, approximately 40% of new mortgages had a 40 year amortization. When the federal Finance Department’s new rules for guaranteeing policies written by the CMHC and the other approved private mortgage insurers come into effect, the maximum amortization period allowed to qualify for federally backed mortgage insurance will be reduced to 35 years and purchasers will be required to have a 5% down payment and meet more rigid credit requirements.)