The evolution of mortgages

There have been many changes to insured mortgages in the last few years. Some are finding it more challenging to qualify, particularly if they are self-employed or are looking to purchase an investment property. Amortizations have been reduced, premiums have increased, and some programs have even been eliminated.

To put things into perspective, I thought it would be interesting to take a look back to how the insured mortgage market has changed in Canada since its inception in 1954, as there have been many changes to the mortgage insurance program since it was first introduced to improve accessibility to home ownership for Canadians.

Prior to 1954, it was extremely difficult to buy a home in Canada unless you had cash. Lending practices were extremely stringent: You needed a minimum 50% down payment and the payments were very high.

The National Housing Act was passed in 1954, which introduced mortgage insurance to Canada. The program compensated lenders if a homeowner defaulted. The other goal was to bring the chartered banks into residential mortgage lending, and to reduce dependence on public funds. Prior to this date, life insurance companies had been the largest private mortgage lenders in Canada.

Originally, only new homes could be insured under the program, and they had to meet NHA housing standards. The target demographic was lower middle income families, and all lenders had to be approved by CMHC. CMHC also set the maximum rates that could be charged on the mortgages, which at that time was 6%. This ceiling was eliminated in 1969.

Here is a timeline of some of the noteworthy changes:

In 1966, existing homes became eligible for insurance under the NHA.

In 1969, lenders were allowed to reduce the minimum term on a mortgage from 25 years to 5 years.

Shorter terms were then allowed in 1978, and again in 1980.

Variable rate mortgages only became eligible for mortgage insurance in 1982.

In 1992, 95% financing was introduced for first time home buyers only, and that restriction was removed in 1998.

In 1995 GE Capital entered the mortgage insurance market, and in 2002 introduced their Alt-A business-for-self program.

Since 2008 there have been other big changes to insured mortgages, including:

Amortizations reduced to 25 years from 40 years.

Elimination of zero down payment programs.

The maximum amount you can borrow for a refinance is now 80% of the value of the property, reduced from 95%.

Insurance is now only available on properties with a value of less than $1 million.

Mortgage insurance options will no doubt change again according to market conditions, whether it be the requirement for higher down payments or higher insurance premiums, but the available options have definitely changed for the better with the introduction of mortgage insurance allowing more Canadians the choice of home ownership.

If you would like more information on mortgage insurance in Canada please give me a call at 250-826-3543 or email [email protected] 

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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