Home Refinancing in Canada Down by 40% on Insured Mortgages

Home refinancing has always been a good option for Canadians who want to reduce their debt or get a better deal on their mortgage. But, according to the CMHC, home refinancing on insured mortgages is down by a whopping 40% from last year, and stringent borrowing rules outlined by the government are mostly to blame. This was outlined in the corporation’s second quarter financial report.
It was in March 2011 that the federal government imposed new rules for borrowing, so that Canadians would have to think twice before they refinanced their home or consolidated their debt. Those rules changed the loan-to-value maximum on home refinancing to 85%, down from the 90% that it had been. This in turn forces homeowners to pay higher interest, which the government is hoping is enough to turn us off of borrowing against the equity in our homes. And from the 40% plunge, it’s obviously working.
Along with noting that home refinancing activity has dropped on insured mortgages, CMHC’s report also had more dismal news regarding these types of mortgages. These mortgages are down 13% from last year at this time. This is not good, as CMHC was actually expecting 20% more insured mortgages than that. But, there are a few reasons for it, says CMHC. They believe, as their report stated, that the change in the maximum amortization from 35 years to 30 years was one of the biggest reasons for the drop, as was a cooler housing market. CMHC also lost some of their market share of insured mortgages to the other two big players, Genworth and Canada Guaranty.
It is important to note that the 40% drop referred to in the report only reflects the percentage for home refinancing on insured mortgages, and not all mortgages in general. Insured mortgages are mortgages that have been insured by a corporation such as CMHC and that protect lenders from homeowners that default on their mortgage. Mortgage insurance is required when less than 20% has been paid as a down payment. The current percentage of insured mortgages in Canada is about 60%, and it’s only this market share that has seen a drop in home refinancing. Statistics have not been released for any major change in home refinancing for the remaining 40% of the market that holds mortgages without insurance.