Eligible Mortgage Loan Regulations (SOR/2012-281)

Interpretation

Marginal note:Definitions

• 1 (1) The following definitions apply in these Regulations.

  credit score

  credit score means a score that is

  • (a) issued by a credit reporting agency that is incorporated by or under an Act of Parliament or of the legislature of a province; and

  • (b) based on a scale that is substantially equivalent to a scale used on June 26, 2011 by a credit reporting agency that was at that time incorporated by or under an Act of Parliament or of the legislature of a province. (pointage de crédit)

  eligible residential property

  eligible residential property means a property consisting of one to four housing units, together with any associated property interests or real rights, structures and facilities. (immeuble résidentiel admissible)

  funded

  funded means, in respect of a mortgage or hypothecary loan, that money under the loan has been advanced to the borrower. (financé)

  gross debt service ratio

  gross debt service ratio means the percentage of a borrower’s gross annual income that is required to cover the annual payments associated with the eligible residential property against which a mortgage or hypothecary loan is secured. (coefficient d’amortissement brut de la dette)

  high ratio loan

  high ratio loan means a mortgage or hypothecary loan that is secured by an eligible residential property and whose principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property, is greater than 80% of the value of the eligible residential property at the time the loan is approved. (prêt à ratio élevé)

  housing unit

  housing unit means a unit that provides living, sleeping, eating, food preparation and sanitary facilities for one household, with or without other essential facilities shared with other housing units. (unité de logement)

  low ratio loan

  low ratio loan means a mortgage or hypothecary loan that is secured by an eligible residential property and whose principal amount, together with the outstanding balance of any loan having an equal or prior claim against the eligible residential property, is less than or equal to 80% of the value of the eligible residential property at the time the loan is approved. (prêt à faible ratio)

  quarter

  quarter means any period of three consecutive months beginning on January 1, April 1, July 1 or October 1. (trimestre)

  total debt service ratio

  total debt service ratio means the percentage of a borrower’s gross annual income that is required to cover their annual payments associated with housing and all other debts. (coefficient d’amortissement total de la dette)

  value of the eligible residential property

  value of the eligible residential property means the value that is ascribed to an eligible residential property by a mortgage or hypothecary lender or a mortgage insurer for the purpose of granting or insuring a mortgage or hypothecary loan and that is verified using a method that is generally accepted by prudent lenders, insurers or professional residential property appraisers. If the purpose of the loan includes the purchase of the property, the value must not exceed

  • (a) the purchase price of the property; or

  • (b) the purchase price of the property plus the estimated cost to the borrower of planned improvements to the property, if the purpose of the loan also includes those improvements. (valeur de l’immeuble résidentiel admissible)

• Marginal note:Verification of value

  (2) For the purposes of the definition value of the eligible residential property in subsection (1), generally accepted methods of verifying value include

  • (a) the use of a statistically reliable and up-to-date valuation model that assesses the value’s reasonableness;

  • (b) a fair-market-value appraisal by a professional residential property appraiser who is independent of the borrower;

  • (c) a drive-by appraisal; or

  • (d) a review of the value of comparable properties.

• Marginal note:Principal amount

  (3) For the purposes of these Regulations, the principal amount of a loan does not include any mortgage or hypothecary insurance premiums.

Application

Marginal note:No pre-existing contract

2 These Regulations apply to every mortgage or hypothecary loan that is not insured under a contract of insurance that could be deemed to be a policy under section 19 of the Protection of Residential Mortgage or Hypothecary Insurance Act.

Criteria

Marginal note:Eligibility

• 3 (1) Subject to subsections (4) and (5), to be an eligible mortgage loan, a mortgage or hypothecary loan must meet the criteria set out in section 4 and, as applicable, section 5 or 6.

• Marginal note:Replacement of security and increased balance

  (2) For greater certainty, if an insured mortgage or hypothecary loan is modified to both replace its security with a new eligible residential property and increase its outstanding balance, the increased portion is to be considered, for the purposes of these Regulations, as a new loan approved on the day on which the increase is approved, which must meet the criteria that apply on that day to be an eligible mortgage loan.

• Marginal note:Other modifications

  (3) If any other modification is made to an insured mortgage or hypothecary loan that requires the payment of an additional mortgage or hypothecary insurance premium, the loan is to be considered, for the purposes of these Regulations, as a new loan approved on the day on which the modification is approved, which must meet the criteria that apply on that day to be an eligible mortgage loan. Any modification that does not require the payment of an additional mortgage or hypothecary insurance premium does not affect the eligibility of the loan.

• Marginal note:Loan workout

  (4) A mortgage or hypothecary loan that is made or modified in relation to a loan workout whose purpose is to reduce or avoid losses on a real or potential mortgage or hypothecary insurance claim on an outstanding insured mortgage or hypothecary loan is itself an eligible mortgage loan if it meets the criteria set out in paragraph 4(a) and does not require the payment of an additional mortgage or hypothecary insurance premium.

• Marginal note:Loan discharge

  (5) A mortgage or hypothecary loan whose purpose is to discharge the outstanding balance of a prior insured mortgage or hypothecary loan is an eligible mortgage loan if the new loan meets the criteria to which the prior loan was subject at the time of the discharge and does not require the payment of an additional mortgage or hypothecary insurance premium.

Marginal note:General criteria

4 A mortgage or hypothecary loan must be

• (a) underwritten and administered by a qualified mortgage lender or held in a registered retirement savings plan or a registered retirement income fund and administered by a qualified mortgage lender; and

• (b) secured in first or second priority position by an eligible residential property.

Marginal note:High ratio loans

• 5 (1) A high ratio loan must meet the following criteria:

  • (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 the loan is secured, must be less than or equal to

    • (i) 95% of the value of the eligible residential property, if its value is no more than $500,000, or

    • (ii) $475,000 plus 90% of the value of the eligible residential property in excess of $500,000, if its value is greater than $500,000;

  • (b) 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 uninsured low ratio loan;

  • (c) the loan must be scheduled to amortize over a period that does not exceed 25 years;

  • (d) the value of the eligible residential property against which the loan is secured must be less than $1,000,000;

  • (e) 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 original amortization schedule;

  • (f) 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;

  • (g) at the time the loan is approved, at least one of its borrowers or guarantors must have a credit score that is greater than or equal to 600;

  • (h) at the time the loan is approved, the gross debt service ratio and total debt service ratio must not exceed 39% and 44%, respectively;

  • (i) the eligible residential property against which the loan is secured must contain at least one housing unit that 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;

  • (j) at the time the loan is approved, it 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; and

  • (k) 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 National Housing Act.

• Marginal note: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:

  • (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 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

  • (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 high ratio loan does not meet the criterion set out in paragraph (1)(j) unless the mortgage or hypothecary lender or mortgage insurer 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.

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/2017-270, 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 National Housing 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 an approved mortgage insurer and at least 95% of all portfolio insured loans of the lender with the approved mortgage insurer 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 mortgage or hypothecary lender or mortgage insurer 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 mortgage or hypothecary loan insurance product that was offered by a mortgage insurer before October 15, 2008 if, before that date,

  • (a) the mortgage insurer received a mortgage or hypothecary 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 mortgage insurer received a mortgage or hypothecary 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 mortgage insurer 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 mortgage insurer received a mortgage or hypothecary 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 mortgage insurer 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 mortgage insurer received a mortgage or hypothecary 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 mortgage insurer received a mortgage or hypothecary insurance 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 not 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 mortgage insurer received a mortgage or hypothecary 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 mortgage insurer received a mortgage or hypothecary 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 mortgage insurer received a mortgage or hypothecary 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.

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

• 8 (1) The criterion set out in paragraph 6(1)(a) does not apply to a low ratio loan in respect of which the mortgage insurer received a mortgage or hypothecary insurance application before October 15, 2008 if it meets the requirements of a mortgage or hypothecary loan insurance product that was offered by the mortgage insurer before that date.

• Marginal note:Low ratio loans — October 15, 2008 to April 17, 2011

  (2) The criterion set out in paragraph 6(1)(a) does not apply to a low ratio loan in respect of which the mortgage insurer received a mortgage or hypothecary insurance application during the period beginning on October 15, 2008 and ending on April 17, 2011.

• Marginal note:Low ratio loans — before July 1, 2016

  (3) The criterion set out in paragraph 6(1)(d) does not apply to a low ratio loan if the mortgage insurer received a mortgage or hypothecary insurance application in respect of the loan — or in respect of the portfolio of loans to which the loan will belong for insurance purposes — before July 1, 2016, unless the application has been denied or the loan has ceased to be insured under insurance resulting from the application.

• Marginal note:Low ratio loans — March 24, 2020 to December 31, 2020

  (4) The criteria set out in paragraphs 6(1)(e) to (g) do not apply to a low ratio loan if

  • (a) the loan was funded before March 20, 2020;

  • (b) the purpose of the loan

    • (i) includes the purchase of the eligible residential property against which it is secured,

    • (ii) is the discharge of the outstanding balance of a prior low ratio loan, or

    • (iii) is the refinancing of a loan that is secured by an eligible residential property;

  • (c) the amortization schedule is not to exceed 30 years from the day on which the loan was funded; and

  • (d) the mortgage insurer received a mortgage or hypothecary insurance application in respect of the loan – or in respect of the portfolio of loans to which the loan will belong for insurance purposes – during the period beginning on March 24, 2020 and ending on December 31, 2020.

Transitional Provisions

Marginal note: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 mortgage insurer received a mortgage or hypothecary 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: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 mortgage insurer received a mortgage or hypothecary 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.