Mortgage Changes
Clarification of CMHC’s Total Debt Service (TDS) Ratio Formula
On February 16, 2010, CMHC announced changes to the treatment of rental income when calculating a borrower’s total debt service ratio (TDS) for mortgage loan insurance applications.
Clarification of the Treatment of Rental Income from Residential Properties
Effective April 19, 2010 CMHC’s TDS formula will change as follows:
|
PITH1 + Other Debt
Borrower’s Gross Annual Income |
1 PITH means principal, interest, property taxes and heat
If the subject property generates rental income, then:
- 50% of gross rents can be included in the borrower’s income; and
- T + H for the property generating rental income can be excluded.
If rental income from another property where the borrower resides is being used to support the application, then:
- 50% of gross rents can be included in the borrower’s income; and
- T + H for the property generating rental income can be excluded.
If the borrower has other non-owner occupied, rental income generating residential properties, then:
- net rental income can be included in the borrower’s income; and
- PITH for these properties can be excluded from the debt service costs.
50% of condominium fees must be included, when applicable. For chattel or leasehold loans, 100% of site or ground rents must be included.
Implementation
The TDS formula detailed in this note will apply to applications for mortgage loan insurance at all loan to values, submitted to CMHC on or after April 19, 2010 for loans that will be funded on or after April 19, 2010.
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