CMHC raises premiums again. Effective March 17th The Canadian Mortgage and Housing Corporation will be significantly raising rates. The media and CMHC can sugar coat it all they want. The increase will hit Canadians and Monoline lenders hard. The new rates will see premiums jump to unprecedented values. that will have a long-lasting impact on the average Canadians mortgage.
As it stands anyone that secures a mortgage with less than 20% Downpayment is subject to pay a premium to either CMHC, Genworth or Canada Guarantee. These are the default insurance providers in Canada. We have seen CMHC increase premiums before the last change occurred June 1st, 2015. You can read more about that change here.
Let’s look at the breakdown of premiums for the average Canadian and what impact will it have on their mortgage. As of March 17th, the new premiums will go up as follows.
| Standard Premiums of March 17th 2017 | ||
|---|---|---|
| Loan-to-Value Ratio | Total Loan Amount | Increase to Loan Amount |
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | 1.70% | 5.90% |
| Up to and including 80% | 2.40% | 6.05% |
| Up to and including 85% | 2.80% | 6.20% |
| Up to and including 90% | 3.10% | 6.25% |
| Up to and including 95% – Traditional Sources of Equity – Nontraditional Sources of Equity |
4.00% 4.50% |
6.30% 6.60% |
| Current Premiums | ||
|---|---|---|
| Loan-to-Value Ratio | Total Loan Amount | Increase to Loan Amount |
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | .0.75 | 2.60% |
| Up to and including 80% | 1.25% | 3.15% |
| Up to and including 85% | 1.80% | 4.00% |
| Up to and including 90% | 2.4% | 4.90% |
| Up to and including 95% – Traditional Sources of Equity – Nontraditional Sources of Equity |
3.6%3.85% | 5.65%* |
The recent changes to the premiums are hitting all levels of down payments. The ones that are most affected by the premium increases are those who are putting larger down payments. This move makes NO sense when you think logically about it. CMHC has mentioned in the past that the largest number of defaults occurs with those who put down less than 10% down payment but we see rates for that block of buyers has gone up only by 11.1% the rate will go from 3.6% to 4%. Okay, not so bad. If we, however, look at someone who is putting down 15% down payment they are now getting hammered on the premium. The rate is increasing from 1.8 to 2.8 that is an increase of 55.6%. This is Crazy.
What does this translate to in dollars and cents for the average Canadian? On a home purchase of $375,000 if you put down 5% you will have a CMHC premium to be taken onto your mortgage of $12,825 based on current premium rates your monthly mortgage payment will be $1,688.46. Effective as of March 17th the new premium will be $14,250 and the new payment will be $1,694.98. Not the end of the world it is an increase of $6.52.
The story is, however, different from those looking to put down 15% down payment on the same purchase. Based on the current rate the premium payable is $5,737.50 and the monthly mortgage payment is $1,484.48. However, with the new rates in place, the premium payable goes up to $8,925 and the new mortgage payment goes up to $1,499.06 this translates to an increase of $14.58 per month.
The ramifications of these premium changes will be felt more by those who are more financially stable than those who are on shaky ground. As far as I’m concerned this makes no sense. Monoline lenders will also be hit with the changes as they continue to insure mortgages even when someone puts 20% down payment. We will most likely see a drastic increase in mortgage rates as the Monoline lenders scramble to recoup losses by the recent mortgage rule changes as well as the changes that CMHC is putting in place in March.
The good news in all of this, we have until March 17th to get people secured for purchases on the old rates. If you make an offer to purchase a property and secure your financing prior to the cut off date then the old rules will be applicable.
The best advice I can give you is if you were thinking about buying this year don’t wait and go get yourself approved as soon as possible. Secure yourself a good rate with the old premiums in place so that way you are not impacted by this rate increase when it comes time to buy.
As always I am available for comment or questions