CMHC To Boost Premiums

CMHC Premiums announcement Yesterday, the Canada Mortgage and Housing Corporation (CMHC) geared up for a big announcement. Today, it has officially announced that it will be raising its insurance premiums effective May 1st of this year for anyone seeking a mortgage with less than 20 per cent down payment. The new premiums will apply to owner occupied, self-employed and 1-to-4 unit rental properties. Mortgages premiums at this time will increase by approximately 15%, on average, for all loan-to-value ranges.

What is Mortgage Insurance?

Mortgage loan insurance applies to home buyers who have a 5% to 20% downpayment. The insurance protect the lender in case of default since mortgage shoppers with downpayments under 20% are viewed as “slightly higher risk”. The premium is paid by the homeowner as either a single lump sum, or it can be added to your monthly mortgage payments. The CMHC is a government organization that is the largest provider of mortgage loan insurance in Canada.

Who Is Affected?

The rise will have no affect on mortgages currently insured by CMHC, only new mortgage insurance requests submitted on or after May 1st will be subject to these higher rates, regardless of the closing date.   For example if you already have CMHC insurance this will not affect your payments. Furthermore, if you buy a home after May 1st with a larger than 20 per cent down payment on a 25 year term, you will not be affected. Only those looking for a new mortgage or renewing a mortgage after May 1st with a less than 20 per cent down payment will be subject to these new rates.

Why Is CMHC Doing This?

The move comes after the annual review of CMHC’s insurance products and capital requirements. CMHC finds this increase will make the system more stable and resilient. It adds that the increased capital targets are consistent with Canadian and international industry trends. “The higher premiums reflect CMHC’s higher capital targets,” said Steven Mennill, CMHC’s Vice-President, Insurance Operations. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”

What Will It Cost Homeowners?

CMHC says that for the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market. Mortgage insurance protects homeowners from default and allows buyers to purchase a home with a minimum of 5 per cent down.

How To Avoid The Increase

If you are shopping for a home right now and anticipate you will request mortgage insurance you can still avoid the increase. CMHC says that in order to be eligible for the current (lower) mortgage loan insurance premiums and surcharges, your lender will need to submit a request for mortgage loan insurance to CMHC prior to May 1, 2014. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

Breakdown Of Insurance Premiums

Previously, the premiums ranged between 0.5 per cent and 2.75 per cent. Now they will rage from 0.6 per cent to 3.15 per cent. See chart provided by CMHC below.

If You Have A 5% Downpayment…

Purchase Price

$157,894

$263,157

$368,421

$473,684

Mortgage Amount

$150,000

$250,000

$350,000

$450,000

Increase to Monthly Mortgage Payment

$3.00

$4.98

$6.99

$8.98

Source: CMHC, Based on a 5 year term @ 3.49% and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

 

If You Have A 15% Downpayment…

Purchase Price

$176,470

$294,117

$411,764

$529,411

Mortgage Amount

$150,000

$250,000

$350,000

$450,000

Increase to Monthly Mortgage Payment

$0.37

$0.62

$0.87

$1.12

Source: CMHC, Based on a 5 year term @ 3.49% and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

 

Get the best rate! Compare mortgage rates now.

compare-now

 

 

Related Topics

Mortgage News / Mortgages

Leave a Reply