Insurable Housing Loan Regulations (SOR/2012-282)

Marginal note:Low ratio loans

• 6 (1) A low ratio loan must meet the following criteria:

  • (a) 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;

  • (b) [Repealed, SOR/2017-271, s. 2]

  • (c) 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;

  • (d) if the loan is not part of a pool of loans on the direct basis of which marketable securities are issued,

    • (i) the loan must be insured on an individual basis on either the day on which it is funded or the day on which additional money is advanced to the borrower as part of the loan’s refinancing,

    • (ii) for any given day, for at least one day in the six-month period prior to that day, the loan must have been part of a pool of loans that meets the criterion set out in paragraph (c) or have not been insured,

    • (iii) the loan must have been in arrears, have been insured when it fell into arrears and since remained insured, and, as a result, not be eligible to be part of a pool of loans,

    • (iv) the loan must belong for insurance purposes to a portfolio of loans with the Corporation and at least 95% of all portfolio insured loans of the lender with the Corporation must meet the criterion set out in paragraph (c) or subparagraph (ii) or (iii), or

    • (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;

  • (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.

• Marginal note: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.

• Marginal note: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.

• Marginal note: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.

Exceptions

Marginal note:High ratio loans — before October 15, 2008

• 7 (1) The criteria set out in paragraphs 5(1)(a) to (j) do not apply to a high ratio loan that meets the requirements of a housing loan insurance product that was offered by the Corporation before October 15, 2008 if, before that date,

  • (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.

• Marginal note:High ratio loans — October 15, 2008 to April 18, 2010

  (2) The criteria set out in paragraphs 5(1)(a), (b), (c), (d), (h) and (i) do not apply to a high ratio loan if

  • (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 it is secured, is less than or equal to 95% of the value of the eligible residential property;

  • (b) it is scheduled to amortize over a period that does not exceed 35 years; and

  • (c) during the period beginning on October 15, 2008 and ending on April 18, 2010

    • (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.

• Marginal note:High ratio loans — April 19, 2010 to March 17, 2011

  (3) The criteria set out in paragraphs 5(1)(a), (b), (c), (d) and (h) do not apply to a high ratio loan if

  • (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 it is secured, is less than or equal to

    • (i) 95% of the value of the eligible residential property, if the purpose of the loan includes the purchase of that property, and

    • (ii) 90% of the value of the eligible residential property, if the purpose of the loan does not include the purchase of that property;

  • (b) the loan is scheduled to amortize over a period that does not exceed 35 years;

  • (c) the Corporation has calculated the gross debt service ratio and total debt service ratio in accordance with the method set out in subsection 5(3); and

  • (d) during the period beginning on April 19, 2010 and ending on March 17, 2011,

    • (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.

• Marginal note:High ratio loans — March 18, 2011 to June 21, 2012

  (4) The criteria set out in paragraphs 5(1)(a), (b), (c), (d) and (h) do not apply to a high ratio loan if

  • (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 it is secured, is less than or equal to

    • (i) 95% of the value of the eligible residential property, if the purpose of the loan includes the purchase of that property, and

    • (ii) 85% of the value of the eligible residential property, if the purpose of the loan does not include the purchase of that property;

  • (b) the loan is scheduled to amortize over a period that does not exceed 30 years;

  • (c) the Corporation has calculated the gross debt service ratio and total debt service ratio in accordance with the method set out in subsection 5(3); and

  • (d) during the period beginning on March 18, 2011 and ending on June 21, 2012,

    • (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.

• Marginal note:High ratio loans — June 22, 2012 to July 8, 2012

  (5) The criteria set out in paragraphs 5(1)(a), (b), (c), (d) and (h) do not apply to a high ratio loan if

  • (a) the loan meets the criteria set out in paragraphs (4)(a) to (c); and

  • (b) during the period beginning on June 22, 2012 and ending on July 8, 2012, the Corporation received a housing loan application in respect of the loan and the loan is funded not later than

    • (i) December 31, 2012, or

    • (ii) June 30, 2013, if it is documented as being scheduled to be funded no later than December 31, 2012 but is delayed due to unforeseen circumstances beyond the borrower’s control.

• Marginal note:High ratio loans — June 22, 2012 to February 14, 2016

  (6) The criterion set out in paragraph 5(1)(a) does not apply to a high ratio loan if, 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 it is secured, is less than or equal to 95% of the value of the eligible residential property and

  • (a) during the period beginning on June 22, 2012 and ending on July 8, 2012, the Corporation received a housing loan insurance application in respect of the loan and the loan was not funded in accordance with paragraph (5)(b);

  • (b) during the period beginning on July 9, 2012 and ending on December 10, 2015

    • (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; or

  • (c) during the period beginning on December 11, 2015 and ending on February 14, 2016, the Corporation received a housing loan insurance application in respect of the loan and the loan is funded not later than

    • (i) July 1, 2016, or

    • (ii) December 31, 2016, if it is documented as being scheduled to be funded not later than July 1, 2016 but is delayed due to unforeseen circumstances beyond the borrower’s control.