Information as provided by Canada Guaranty, CMHC, & Sagen July 19, 2022
Given the rising interest rate environment, the mortgage insurers (Canada Guaranty, CMHC, Sagen) have collaborated to provide clarification regarding the application of the minimum qualifying rate on a Variable Rate Mortgage (“VRM”) that are impacted by interest rate increases prior to loan funding. For VRM loans where the Lender has made a legally binding commitment to lend and has obtained an approval from the mortgage loan insurer, in the event of an increase to the VRM contract rate prior to funding, the Lender is not required to resubmit the VRM contract rate to the mortgage insurer for requalification. All other changes that are made after the mortgage insurer has issued an approval are expected to be resubmitted in line with existing underwriting policies.
Questions and Answers
1. If a lender received a mortgage insurance approval for a VRM and the VRM contract rate increases post-approval, does the loan need to be re-qualified based on the current VRM contract rate?
No, an increase in the VRM contract rate post-approval does not require requalification as long as no other material changes have been made to the application.An example of a material change that requires resubmission for requalification is where the mortgage rate type on the approved mortgage insurance application is modified from VRM to a fixed rate mortgage.
2. If a lender has cancelled an approved mortgage insurance application for a VRM (e.g., in error, technology issues) and then needs to re-open or resubmit the application following a VRM contract rate increase, will the application continue to be eligible for the qualifying rate in place at the time of the initial mortgage insurance approval?
Yes, the application will continue to be eligible for the qualifying rate in place at the time of the initial insurance commitment provided that the property and at least one of the borrowers has not changed.
3. The lender has submitted the application for a VRM and has not yet received an approval from a mortgage insurer and the VRM contract rate increases, is the lender required to resubmit the loan for requalification?
Yes, the loan will have to be requalified at the increased VRM contract rate.
4. If the lender has a legally binding commitment to lend and has obtained an approval from the insurer, when is the lender required to resubmit the loan for requalification?
Lenders are expected to resubmit and requalify based on the existing underwriting resubmission policy, apart from the increase to a VRM contract rate as outlined in this update.
5. Will the VRM criteria apply to pre-approvals where the VRM contract rate has increased following the pre-approval date?
No, given mortgage insurance commitments are not issued on pre-approvals, the VRM loan will be qualified at the current VRM contract rate at time of submission.
6. Will the VRM qualification criteria be applicable for portfolio insurance transactions?
Yes, lenders may apply the criteria to VRMs as noted for portfolio insurance transactions.
If you have any questions on this please reach out today!