On April 2nd, 2015 the CMHC conducted its annual\u00a0review of the various products and services that it offers and it found that\u00a0the largest group of defaulting mortgages is those who put a down payment of\u00a0less than 10%. With these findings, they now have decided to increase once\u00a0again the amount charged to home buyers. This is an attempt to offset the\u00a0losses that have been incurred by the default rates of this category of home\u00a0buyer.<\/p>\n
As a result, we will see insurance rates increase as early\u00a0as this summer, June 1st to be exact. The insurance rates will go up\u00a0on all mortgage requests with down payments of less than 10% as well as on\u00a0mortgage requests that have Non-Traditional down payment confirmation.<\/p>\n
The short-term impact of this increase, although minimal,\u00a0can have a long-term undesirable impact on one’s bottom line. If you visit CMHC\u2019s\u00a0website they try and spin it as it will impact the average home buyer by about\u00a0$5 per month, however when you look at the bottom line, you can see that the\u00a0impact is far greater.<\/p>\n
First, let us take a look at what it means and how the\u00a0historic insurance premiums have gone up. Prior to May 1st, 2014, the\u00a0standard premium for a mortgage with a down payment of less than 10% was 2.90%.\u00a0We saw this increase from 2.90% to 3.15%\u00a0on May 1st, 2014. The new premium came as a shock to most homebuyers\u00a0and mortgage professionals alike. As we move to June 1st, 2015, we\u00a0are looking at a new increase, now taking the rate from 3.15% to 3.60%. \u00a0This translates to an increase from a premium\u00a0of 2.90% to 3.60% that is an increase of 31%.<\/p>\n
CMHC is claiming that this increase is taking effect because\u00a0it has the largest losses in the category of buyers putting less than 10% down payment,\u00a0however, what they are not mentioning is that this is the largest category of buyers\u00a0PERIOD. \u00a0It is therefore obvious that if\u00a0you look at default rates, the majority would end up in that category as this\u00a0is the largest group of people buying.<\/p>\n
How will this impact\u00a0the average consumer and what it means to peoples bottom line<\/p>\n
If we look at an average mortgage of $275,000 on a 25year\u00a0amortization and at a 5year fixed rate of 2.59% here is the result.<\/p>\n
This means that the premium as of June 1st will cost\u00a0you $2,337.50 more versus only a year ago. Not to mention, if we factor in an\u00a0average interest rate over the life of your mortgage of about 5.5%, additional to\u00a0your premium, the interest you will pay on amortizing this increase translates\u00a0to $1,942.87, totaling a long-term effect of $4,280.37.<\/p>\n
The largest immediate impact of this change will be seen on\u00a0the taxes payable on the CMHC premium (9% tax). This tax amount is due at notary and cannot be amortized over the life\u00a0of the mortgage. Compared to only one year ago, this amount was $210.00 less.\u00a0This means that the average consumer is now faced with an extra amount that\u00a0they must bring to a notary to cover taxes on the premium. Further to this, we\u00a0see an increase in payments of $10.58 per month this translates to an extra $634.80\u00a0over the first term of the mortgage.<\/p>\n
If you are currently in the market to purchase a home, it is\u00a0important to keep all these changes in mind and plan accordingly. If you find a\u00a0home prior to June 1st and the mortgage request is submitted to CMHC\u00a0prior to this date, the old premium table will apply. If you make your mortgage\u00a0request after July 1st, then you will be forced to pay the larger\u00a0premiums.<\/p>\n
As always, if you have any questions or comments for this\u00a0article please feel free to contact me by phone at 514-680-4674 or by email at skilakos@nordest.ca<\/p>\n
HAPPY SHOPPING EVERYONE<\/p>\n","protected":false},"excerpt":{"rendered":"
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