Canada’s Office of the Superintendent of Financial Institutions (“OSFI”) has mandated all federally-regulated mortgage default insurers financial to adopt certain minimum benchmarks for residential mortgage default insurance (“insurance”) underwriting practices and procedures. These guidelines are commonly referred to as the B-21 Rules. They are currently scheduled to be implemented by June 30, 2015.
Mortgage default insurance is required by regulations when mortgage loans exceed 80 % of the value of properties. Insurance can also be mandated at lenders’ discretion when certain conditions that are related to the property do not meet the lenders’ minimum standards.
Insurance, which is only available to approved financial institutions such as banks, trust companies, credit unions and insurance companies, protects these lenders against losses that they may incur after borrowers default on payment of mortgage loans. There are 3 insurers that are licensed in Canada to insure residential mortgages: Canada Guaranty Mortgage Insurance Company, Canada Mortgage and Housing Corporation and Genworth Financial Mortgage Insurance Company Canada. The premiums for this type of insurance are paid by borrowers and are usually added to the loan amounts that borrowers borrow.
Mortgage default insurance is often a convenient and inexpensive tool that assists borrowers to become homeowners. However, in some instances, insurance isn’t necessarily cost-effective. When searching for mortgage financing, prospective homeowners are well-served to explore other options to mortgage default insurance, such as a combination of first and second mortgage loans, or borrowing down payment funds from family.
The new B-21 Rules could make it more difficult for some potential homeowners, such as self-employed, commissioned or contract employees, to qualify for high-ratio mortgage loans (greater than 80 % of the value of a property).
If you’re considering home ownership, or thinking of refinancing current mortgage loans, or need to borrow more because you’re thinking of buying a higher-value home, feel free to call us to investigate all of the options that are available to you. Domus Financial Corporation. 416.605.5787. Underwriting@DomusFinancial.com.