Insurable Housing Loan Regulations

Marginal note:High ratio loans

• 5 (1) A high ratio loan must meet the following criteria:

  • (a) at the time the loan is approved, its principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property against which the loan is secured, must be less than or equal to

    • (i) 95% of the value of the eligible residential property, if its value is no more than $500,000, or

    • (ii) $475,000 plus 90% of the value of the eligible residential property in excess of $500,000, if its value is greater than $500,000;

  • (b) the purpose of the loan must either

    • (i) include the purchase of the eligible residential property against which it is secured, or

    • (ii) be the discharge of the outstanding balance of a prior uninsured low ratio loan;

  • (c) the loan must be scheduled to amortize over a period that does not exceed 25 years;

  • (d) the value of the eligible residential property against which the loan is secured must be less than $1,000,000;

  • (e) if the loan agreement allows for fluctuations in the amortization period as a result of a variable rate of interest during the term of the loan, the loan payment must be recalculated at least once every five years to conform to the original amortization schedule;

  • (f) the loan agreement must establish scheduled principal and interest payments that will begin reducing the outstanding principal in accordance with the overall amortization schedule agreed to at the making of the loan, commencing on

    • (i) the day on which the loan is funded,

    • (ii) the day on which the agreement of purchase and sale closes, or

    • (iii) the day on which the improvement, conversion or development of the eligible residential property is completed;

  • (g) at the time the loan is approved, at least one of its borrowers or guarantors must have a credit score that is greater than or equal to 600;

  • (h) at the time the loan is approved, the gross debt service ratio and the total debt service ratio must not exceed 39% and 44%, respectively;

  • (i) the eligible residential property against which the loan is secured must contain at least one family housing unit that will be occupied by the borrower or by a person related to the borrower by marriage, common-law partnership or any legal parent-child relationship;

  • (j) at the time the loan is approved, it must be reasonably likely to be repaid, having regard to the borrower’s capacity to make the loan payments while paying their other debts and meeting their other obligations over the term of the loan, based on reasonable assumptions as to what the highest loan payment over the term of the loan will be; and

  • (k) if the loan is part of a pool of loans on the direct basis of which marketable securities are issued, any securities issued on the direct basis of the pool after July 1, 2016 must be guaranteed under subsection 14(1) of the Act.

• Marginal note:Credit score exception

  (2) The criterion set out in paragraph (1)(g) does not apply if no more than 3% of the lender’s high ratio loans and low ratio loans that were approved for insurance and funded during one of the following periods were loans in respect of which no borrower or guarantor had a credit score of at least 600:

  • (a) the first four quarters of the preceding five quarters;

  • (b) the first four quarters of the preceding six quarters; or

  • (c) the first four quarters of the preceding seven quarters.

• Marginal note:Debt service ratio calculations — certain loans

  (3) For the purposes of paragraph (1)(h), the gross debt service ratio and total debt service ratio are to be calculated using the annual payments, in respect of the loan and any other loan with an equal or prior claim against the eligible residential property, that would be required to conform to the amortization schedule agreed to by the borrower and the lender if the interest rate were the greater of

  • (a) the interest rate set out in the loan agreement, and

  • (b) the five-year conventional mortgage interest rate, as determined weekly by the Bank of Canada, that was in effect on the Monday of the week in which the calculation is performed.

• Marginal note:Reasonable likelihood of repayment

  (4) A high ratio loan does not meet the criterion set out in paragraph (1)(j) unless the lender or the Corporation has made reasonable efforts to verify the borrower’s income and employment status or, if the borrower is self-employed, to assess the plausibility of the income reported by the borrower.