Mortgage Costs About to Rise

Sabeena Bubber • May 10, 2016

Non-bank lenders rely heavily on securitization (selling mortgages to investors to raise money). They then lend that money out to new borrowers. This July, that’s about to get a whole lot more complicated…and costly.

Big changes are afoot in the mortgage business, and they’re coming to a lender near you in two months. They include:

  • Higher fees for lenders who use government-guaranteed mortgage-backed securities (MBS)
  • Restrictions on securitizing mortgages in non-CMHC guaranteed securities
  • A requirement to securitize portfolio (bulk) insured mortgages within six months

New Guarantee Fees

The Department of Finance (DoF) wants to spur development of “private market funding sources” for mortgages. The goal is to reduce Ottawa’s direct exposure to mortgage risk. CMHC’s answer is to raise the cost of government-sponsored funding. The losers here are lenders that depend on securitization methods, like the Canada Mortgage Bond (CMB). These extra fees will likely be passed straight through to consumers in the form of higher rates.

Banning Non-CMHC-Sponsored Securitization

Effective July 1, lenders will no longer be able to directly place insured mortgages in non-CMHC approved securities. Lenders who rely on asset-backed commercial paper (ABCP), which include a few of the top non-bank broker-channel lenders, will have to find another way to sell their mortgages.

That’s a problem for these lenders. Normal securitization, like NHA MBS, require lenders to assemble $2+ million pools of mortgages that are very similar in attributes (similar term, similar interest adjustment dates, similar coupons, etc.). ABCP wasn’t as restrictive. It helped key broker-channel lenders sell off different and odd types of prime mortgages more easily (read, more cost effectively).

There are still a few workarounds for getting insured mortgages into ABCP conduits (e.g., by turning them into NHA MBS pools, paying a guarantee fee and then selling them into ABCP conduits), but that’s more expensive. Once again, these extra costs will be passed straight through to consumers.

The New Purpose Test

Here’s where things get dicey. The DoF has a new “purpose test” starting this July for mortgages that are portfolio (a.k.a., “bulk”) insured. Lenders that bulk insure mortgages will have six months to securitize them. If they don’t, the insurance on those mortgages will be cancelled. (There are a few exceptions, including but not limited to, a 5% buffer and an allowance for delinquent mortgages.)

The goal of this purpose test is to ensure lenders use bulk insurance for securitization purposes and not capital relief (a strategy where big banks insured mortgages and used the “zero-risk” status of those insured mortgages to avoid setting aside capital against them).

This new “purpose test” sounds fairly innocuous, until you look at it from a small lender’s eyes. Small lenders don’t have balance sheets like the major banks. If they fund a mortgage that isn’t eligible for securitization, they have a problem.

Small lenders, for instance, can’t securitize 1- or 2-year terms very effectively. Securitization pools must be at least $2 million, be grouped by amortization, have similar interest rates and cannot be overweighted with big mortgages. As such, the little guys don’t have enough of them to pool and they don’t have a large array of buyers for these short-term mortgages.

The net effect is that smaller lenders (and new entrants) probably won’t be able to price 1- or 2-year terms as competitively. They’ll likely have to sell to big balance sheet lenders (a.k.a., “aggregators”), potentially at margin-squeezing prices. Even if they could pool them, the result would be a larger number of small pools, which are more expensive to sell to investors.

Practically speaking, this could be a real problem for:

  • renewing borrowers who want a shorter term from a non-bank lender
  • borrowers who want to refinance (e.g., Someone with two years left on their mortgage who wants to add $50,000 to it can typically blend and increase with no penalty. Going forward, smaller non-bank lenders may limit this feature on terms less than three years)
  • variable-rate borrowers who want to convert into a shorter-term fixed mortgage (more lenders may start restricting variable-rate conversions to 5-year terms only)

The Takeaway

This latest onslaught of mortgage regs could soon reduce liquidity for non-bank lenders with less diverse funding sources than the banks. Remember that when you hear the DoF and CMHC lauding how their policies foster competition in the mortgage market.

These changes are especially painful to smaller lenders who can’t pool enough mortgages cost-effectively. The result could be more one-dimensional product offerings (e.g., 3-year and 5-year terms only, and fewer mid-term refinance privileges) for these very important bank challengers.

This, in turn, raises costs for customers both directly and indirectly. For mortgages funding after June, there will be a literal step-up in rates. In addition, there’s the indirect impact from less rate competition from smaller lenders. Remember, rates are set at the margin. Consumers have been increasingly exposed to competitive rates from bank challengers, and that in turn influences big bank pricing.

All of this is in the name of reducing government exposure to mortgages, mortgages that have proven time and again to be one of the lowest-risk asset classes in Canada.

Did the federal policy-makers envision all these side effects when they instituted these rules? We have to assume they did, and chose to do it anyhow.

 

The article "Mortgage Costs About to Rise" was originally published Canadian Mortgage trends, May 9th, 2016. Canadian Mortgage Trends is a publication of Mortgage Professionals Canada.  

SHARE THIS ARTICLE

RECENT POSTS

How to Legally Assign a Construction Mortgage

By Sabeena Bubber • September 30, 2026
Why More Mortgage Options Matter—Especially for Assignment Purchases One of the biggest advantages of working with an independent mortgage professional is access to choice. Instead of being limited to one lender and one set of products, mortgage brokers work with multiple lenders—each with different guidelines, risk tolerances, and mortgage solutions. That flexibility becomes especially valuable when your situation doesn’t fit neatly into a “standard” box. A great example of this is purchasing new construction through an assignment contract . Why Assignment Purchases Can Be Challenging Assignment purchases are often viewed as higher risk by traditional lenders. Rather than declining these deals outright, many lenders quietly make them difficult by adding layers of conditions, restrictions, or uncertainty. This can lead to delays, frustration, or financing falling apart late in the process. The Good News There are lenders—available exclusively through the broker channel —that have clear, favourable policies for assignment purchases. With the right lender and proper planning, these transactions are absolutely doable. Typical Financing Requirements for Assignment Purchases While every situation is unique, many lenders that allow assignment financing look for the following: Standard purchase qualification, including income verification, credit, and down payment Assignments accepted at either the original purchase price or current market value Minimum 620 credit score , with no prior bankruptcies or consumer proposals The full down payment must come from the purchaser —seller incentives cannot be used Required Documentation To secure financing, lenders typically require: The original purchase agreement signed by all parties The MLS listing (if applicable) The assignment agreement signed by the builder, original purchaser, and new buyer Any side agreements outlining changes to the purchase price A full appraisal to confirm value This list isn’t exhaustive, but it highlights that while assignment purchases require more coordination, they are very achievable with the right lender and guidance. Final Thoughts Assignment contracts can open doors to great opportunities—but only if your financing supports the transaction. This is where access to multiple lenders and specialized policies makes a real difference. If you’re considering purchasing new construction through an assignment, or if you’d like to explore more traditional purchase options, feel free to connect anytime. I’d be happy to walk you through the mortgage products available and help you choose an option that doesn’t limit your financing possibilities.

How to Finance a Spousal Buyout After Separation or Divorce

By Sabeena Bubber • September 23, 2026
Mortgage Options During Divorce or Separation: What You Should Know If you’re going through—or considering—a divorce or separation, you may not realize that there are mortgage solutions specifically designed to help one party keep the home . For many people, the family home is their largest asset and where most of their equity is tied up. In situations like this, a spousal buyout program can allow one person to refinance the property and buy out the other party’s share—often up to 95% of the home’s value . This option can work whether you want to keep the home or your former partner does. What Is the Spousal Buyout Program? The spousal buyout program is a refinancing option that allows one owner to purchase the other owner’s share of the property as part of a separation or divorce settlement. In some cases, it can also be used to pay off jointly held debts, as outlined in a legal agreement. Below are some of the most common questions about how the program works. Is a finalized separation agreement required? Yes. Lenders require a signed and finalized separation agreement that clearly outlines how assets and debts are to be divided. This document is essential for approval. Can the funds be used for renovations or personal debts? No. Funds from a spousal buyout can only be used to: Buy out the other owner’s share of equity Pay off joint debts specifically listed in the separation agreement They cannot be used for renovations, personal loans, or unrelated expenses. How much equity can be accessed? The maximum amount available is the amount required to: Buy out the other party’s agreed-upon share of equity Pay off any joint debts listed in the agreement This amount cannot exceed 95% loan-to-value . What is the maximum loan-to-value allowed? The maximum loan-to-value is the lesser of : 95%, or The remaining mortgage balance plus the required buyout and joint debt payout The property must be the primary owner-occupied residence . Do all parties need to be on title? Yes. All individuals involved in the buyout must currently be registered on title. Your solicitor will confirm this through a title search. Does this only apply to married or common-law couples? No. While commonly used for married or common-law couples, the program may also apply to siblings or friends who jointly own a property and need one party to exit the mortgage. These cases are typically reviewed on an exception basis and require insurer approval. If no separation agreement exists, the purchase contract must clearly outline the buyout terms. Is a full appraisal required? Yes. A physical, on-site appraisal is required to confirm the property’s value before the mortgage can be finalized. Final Thoughts This overview covers some of the most common questions about mortgage options during separation or divorce, but every situation is different. Working with an independent mortgage professional gives you access to multiple lenders, specialized programs, and unbiased advice—so you can clearly understand your options and choose what’s best for your future. If you’re navigating a separation and need guidance around keeping or selling the home, feel free to connect anytime. All conversations are handled with discretion and confidentiality, and I’d be happy to walk you through your options.

What Mortgage Lenders Need to Know About Your Down Payment Source

By Sabeena Bubber • September 16, 2026
Why the Source of Your Down Payment Matters More Than You Think When buying a home, most people focus on how much they need for a down payment. What often gets overlooked is that where the down payment comes from matters just as much to the lender . The source of your down payment affects approval, risk assessment, and how your mortgage is structured. Here’s why lenders care—and what you need to know. 1. Anti–Money Laundering Requirements Lenders aren’t just being cautious—they’re legally required to verify the source of your down payment. To comply with anti–money laundering regulations, lenders must document where every dollar of the down payment came from on every purchase. Acceptable Down Payment Sources Down payments can come from: Your own savings or investments Borrowed funds through an insured program (such as FlexDown) A gift from an immediate family member How You Prove the Source Personal savings: You’ll need bank statements showing the funds have been in your account for at least 90 days , or proof they were accumulated through payroll deposits or other acceptable sources. Borrowed funds: Any borrowed portion must be included in your debt service ratios , since you’re responsible for repayment. Gifted funds: A signed gift letter is required confirming the money is a true gift with no repayment obligation , along with proof the funds were deposited into your account. 2. Financial Suitability and Risk The source of your down payment also tells the lender a lot about your financial habits. Down payments coming from your own savings demonstrate: Positive cash flow The ability to save consistently Strong financial management This reassures lenders that you’re more likely to keep up with mortgage payments. If the down payment is borrowed or gifted, lenders may look more closely at the rest of your application to ensure the mortgage remains affordable. Why a Larger Down Payment Helps From a lender’s perspective, more equity equals lower risk. The more money you have invested in the property, the less likely you are to walk away from the mortgage. This reduces the lender’s exposure and can sometimes result in better terms. 3. Down Payment and Loan-to-Value (LTV) Your down payment directly establishes your loan-to-value ratio (LTV)—the percentage of the property’s value being financed. In Canada: Lenders can finance up to 95% of a property’s value The buyer must contribute at least 5% as a down payment Example: On a $400,000 purchase: Maximum mortgage = $380,000 Minimum down payment = $20,000 How the Source Affects LTV Property value must be genuine and independently supported. Lenders rely on appraisals and comparable sales—not artificial price inflation. If: The seller provides money back The buyer doesn’t bring the full down payment independently Funds move “behind the scenes” …the lender considers this a change to the LTV and may decline the mortgage. All financial details of the purchase must be fully disclosed. Non-disclosure is mortgage fraud , and lenders will not proceed if the numbers don’t align. Final Thoughts Lenders ask for detailed documentation about your down payment source for good reason—it affects legality, risk, and the structure of your mortgage. Understanding these rules upfront helps avoid delays, declined applications, and last-minute surprises. If you’d like to review your down payment options or talk through mortgage financing, feel free to connect anytime. I’d be happy to walk you through the process and help you plan with confidence.