On Friday, February 28th, the CMHC (Canadian Mortgage Housing Corporation) made a public announcement that they will be increasing its homeowner mortgage loan insurance premiums effective May 1, 2014.  So, now you may ask, “How does this affect my home purchase?”

In Canada, mortgage lenders require Buyers to pay for a mortgage insurance if the Buyer has less than 20% down payment.  Mortgage loan insurance helps to protect lenders against mortgage default and allows consumers to purchase a home with a down payment of 5% with interest rates comparable to those with a 20% down payment.

Most people add this insurance premium to their monthly mortgage and pay it over 25 years. For the average Canadian requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. So, overall, not a huge impact if you look at it from that point of view.

However, here is how it is laid out for the real dollar impact for the CMHC increase.

95% Loan-to-Value (5% Down)

Loan Amount

$150,000

$250,000

$350,000

$450,000

Current Premium

$4,125

$6,875

$9,625

$12,375

New Premium

$4,725

$7,875

$11,025

$14,175

Additional Premium

$600

$1,000

$1,400

$1,800

Increase to Monthly Mortgage Payment

$3.00

$4.98

$6.99

$8.98

 

 

 

 

 

 

 

 

 

The insurance premium increase is laid out below versus the premium today.  The more down payment you have, the less of a fee you have to pay to CMHC to cover your default insurance premium.

Loan-to-Value Ratio

Standard Premium (Current)

Standard Premium (Effective May 1st, 2014)

Up to and including 65%

0.50%

0.60%

Up to and including 75%

0.65%

0.75%

Up to and including 80%

1.00%

1.25%

Up to and including 85%

1.75%

1.80%

Up to and including 90%

2.00%

2.40%

Up to and including 95%

2.75%

3.15%

90.01% to 95% – Non-Traditional Down Payment

2.90%

3.35%

 

This increase may affect many Buyers to purchase a home now! If that is you and you want to avoid the increased fee, make sure your lender submits a request for CMHC insurance prior to May 1st, 2014.  The closing date on your home does not matter, however, you will need a firm Agreement of Purchase and Sale and have your mortgage in process by May 1st, 2014.  In my opinion, if you have 5% down payment and want to save a couple hundred dollars to a few thousand, buy a home before May 1st.  We are always here to help clarify any questions that you may have regarding this matter or any other real estate questions.

 

Daniele & Rob Yeo
www.TheYeoGroup.com