April 19th brings new rules for CMHC insured mortgages, but the one that may affect the Vancouver housing market the most seems to be poorly understood.  Many buyers rely on income from rental suites to get approved for a larger mortgage, but suite income will no longer be counted towards your mortgage approval limit in the same way.  At first glance it looks like a relatively small shift, from 80% to 50%, but that’s not the case.

Currently if you buy a house with a basement suite you can take 80% of the rental income and use it to top off your monthly payment.  A $1000 a month suite would mean you have an extra $800 counted towards your monthly ability to pay your mortgage.

Under the new rules, you can only take 50% of your suite income and add it to your income.  It sounds similar and that’s why it gets confusing, but the difference is dramatic.   a $1000 suite means ($500 x 12) $6000 more added to your income to qualify.  Some of you have been busy doing the math for different circumstances, here’s a couple recent figures, please check the math for any errors:

Best place on Meth:

$60,000 median household income. $1000 per month suite income. 35 year am. 5% down. Payments on 5 year fixed.
– March 19, 3.29% qualifying rate, maximum mortgage $575,082
– April 19, 4.4% qualifying rate, maximum mortgage $357,269
= A 37% decrease in purchasing power.

Oneangryslav:

Before April 19th:
–$60,000 annual household income
–5% down
–35-year amort., with 5-yr fixed at 3.29%, means
–Annual property taxes of $2100.
–Zero additional debt
–Zero condo fees
–You can qualify for a mortgage of $333,381
–With monthly payments of 1333

With a
–$1,000 monthly mortgage helper, you can use 80% of that to top off your monthly payment.
–So, your monthly payment can be as high as $1333+$800, or $2133.
–This will allow you to take on a mortgage (using the same terms as above) of about $533,500

Post-April 19th:
–$60,000 annual household income
–5% down
–35-year amort., with 5-yr fixed at 4.4%
–With 50% of rental income topping off your annual income
–Yields a total annual income of $66,000.
–Zero additional debt
–Annual property tax of $2100

So, you can qualify for a mortgage of about:
–$319,605

Which is a ($533,500-$319,605)/$319,605, or 40.1% drop in purchasing power.

And here’s an earlier post by Joycer that goes into more detail and includes formulas – not ideal for those whose response to math class was “when am I ever going to need this in real life?”

And just for fun, here’s an editorial by a real estate investor who apparently believes that the previous CMHC provisions should be viewed as an immutable law of nature and the new rules represent government interference:

But with the new rules, which take effect on April 19, the government is now insisting investors need a larger down payment to purchase a property. And there are a number of other qualifying rules. As a result, there will be fewer investors buying and more properties will be available. Properties will stay on the market longer and prices will decrease. To me, this is counterproductive. The good news is that people will stop wasting their money on CMHC fees and CMHC will make less money.

Clearly the words of an expert, perhaps we should organize a letter writing campaign to make sure the big bad CMHC doesn’t ruin all the great investment opportunities for the little guy.