Vol. 151, No. 26 — December 27, 2017
Registration
SOR/2017-271 December 7, 2017
NATIONAL HOUSING ACT
The Minister of Finance, having consulted the Governor of the Bank of Canada and the Superintendent of Financial Institutions, pursuant to subsection 8.1(1) (see footnote a) of the National Housing Act (see footnote b), makes the annexed Regulations Amending the Insurable Housing Loan Regulations.
Ottawa, December 4, 2017
William Francis Morneau
Minister of Finance
Regulations Amending the Insurable Housing Loan Regulations
Amendments
1 (1) Paragraph 5(1)(e) of the French version of the Insurable Housing Loan Regulations (see footnote 1) is replaced by the following:
- e) si le contrat de prêt permet des variations de la période d’amortissement en raison d’une fluctuation des taux d’intérêt pendant sa durée, le remboursement du prêt est recalculé au moins tous les cinq ans pour respecter le tableau d’amortissement original;
(2) The portion of subsection 5(2) of the Regulations before paragraph (a) is replaced by the following:
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:
(3) The portion of subsection 5(3) of the Regulations before paragraph (a) is replaced by the following:
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
2 (1) Paragraph 6(b) of the Regulations is repealed.
(2) Paragraph 6(d) of the Regulations is amended by striking out “or” at the end of subparagraph (iii), by adding “or” at the end of subparagraph (iv) and by adding the following after subparagraph (iv):
- (v) the loan must be held or will be held in a registered retirement savings plan or a registered retirement income fund of
- (A) any partnership that does not deal at arm’s length, within the meaning of section 251 of the Income Tax Act, with the borrower, or
- (B) a connected person, as defined in subsection 4901(2) of the Income Tax Regulations, to the borrower;
(3) Section 6 of the Regulations is amended by striking out “and” at the end of paragraph (c) and by adding the following after paragraph (d):
- (e) 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 low ratio loan;
- (f) the outstanding balance of the loan at any time over the term of the loan is not to be increased to exceed the balance that would have been outstanding at that time under the lender’s original amortization schedule;
- (g) the amortization schedule is not to be extended over the term of the loan and is not to exceed
- (i) if the loan is for the purchase of the eligible residential property against which it is secured, 25 years, or
- (ii) if the loan is for the discharge of the outstanding balance of a prior low ratio loan, the lesser of 25 years and the remaining amortization period of the prior low ratio loan;
- (h) at either the time of the initial approval of the loan by a qualified mortgage lender or discharge of the outstanding balance of a prior low ratio loan by the qualified mortgage lender, the value of the eligible residential property against which it is insured must be less than $1,000,000;
- (i) 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 lender’s original amortization schedule;
- (j) at the time of the mortgage or hypothecary insurance application, at least one of its borrowers or guarantors must have a credit score that is greater than or equal to 600;
- (k) at the time of the qualified mortgage lender’s initial approval of the loan or discharge of the outstanding balance of a prior low ratio loan, as the case may be, the gross debt service ratio and total debt service ratio must not exceed 39% and 44%, respectively;
- (l) at the time of the qualified mortgage lender’s initial approval of the loan or discharge of the outstanding balance of a prior low ratio loan, as the case may be, if the eligible residential property against which the loan is secured contains only one housing unit, that unit 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; and
- (m) at the time of the mortgage or hypothecary insurance application, the loan 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.
(4) Section 6 of the Regulations is renumbered as subsection 6(1) and is amended by adding the following :
Credit score exception
(2) The criterion specified in paragraph (1)(j) 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.
Debt service ratio calculations
(3) For the purpose of paragraph (1)(k), the gross debt service ratio and total debt service ratio must 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.
Reasonable likelihood of repayment
(4) A low ratio loan does not meet the criterion set out in paragraph (1)(m) unless the approved 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.
3 Section 9 of the Regulations and the heading before it are replaced by the following:
Transitional Provisions
High ratio loans
9 (1) A high ratio loan is to be governed by these Regulations as they read on October 16, 2016 if, on any day before October 17, 2016,
- (a) the Corporation received a housing loan insurance application in respect of the loan;
- (b) the lender made a legally binding commitment to make the loan to the borrower; or
- (c) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured.
Low ratio loans
(2) A low ratio loan is to be governed by these Regulations as they read on October 16, 2016
- (a) if, on any day before November 29, 2016,
- (i) the Corporation received a housing loan insurance application in respect of the loan,
- (ii) the lender made a legally binding commitment to make the loan to the borrower, or
- (iii) the borrower entered into a legally binding agreement of purchase and sale in respect of the eligible residential property against which the loan is secured; and
- (b) if the condition referred to in paragraph (a) was met on or after October 17, 2016, the loan is funded not later than
- (i) April 30, 2017, or
- (ii) October 31, 2017, if the loan is documented as being scheduled to be funded not later than April 30, 2017 but was delayed due to unforeseen circumstances beyond the borrower’s control.
Coming into Force
4 These Regulations are deemed to have come into force on October 17, 2016.
N.B. The Regulatory Impact Analysis Statement for these Regulations appears following SOR/2017-270, Regulations Amending the Eligible Mortgage Loan Regulations.
- Footnote a
S.C. 2012, c. 19, s. 357 - Footnote b
R.S., c. N-11 - Footnote 1
SOR/2012-282