CMHC Insurance Premium Increases
Guest blogger: Kevin Oake, Mortgage Broker Dominion Lending Centres
High Ratio home buyers – those with less than 20% down payment – will soon be faced with a higher CMHC insurance premium for their insured mortgage.
The news came out yesterday and will come into effect March 17, 2017. This is the third premium rate adjustment in the past 3 years.
This latest increase is related to new rules that are being imposed on the insurer(s) that result in higher costs. Passing these costs on the consumer is the end result.
A few points to clarify:
- Non bank lenders (what is referred to mono line or mortgage finance companies available to us as mortgage brokers) insure all of their mortgages but generally only pass on the premium to those with less than a 20% down payment. Rental home mortgages and those under special programs, generally require a 35% down payment which is one reason this chart starts at 65% Loan to Value
- The increases vary by segment.
- The increase to the 75-80% segment will have an impact on the non bank/mono line lenders as they absorb this premium currently and will likely have to price their rates to off-set this bump. This leads into a different topic but essentially these premium rate increases have made the mortgage lending field a little unbalanced.
- The new BC Partnership program ( https://www.bchousing.org/housing-assistance/bc-home-partnership ) is considered a non traditional down payment (bottom row)
- The loan to value ratio represents how much you’ve borrowed (your mortgage) relative to your down payment. Therefore if you’ve put down 15%, then your loan to value ratio would be 85%.
The chart below displays the changes and as you will see, some categories will have a higher lift than others.
How this will impact a typical mortgage?
I don’t see it having a detrimental impact on borrowers ability to qualify as the debt servicing increase is relatively nominal.
It is however a cost and those that have been working hard to save the thousands and thousands to get into the purchase zone will take the news of the larger premium a bit harder.
The monthly impact to your mortgage payment will depend a bit more on where you fall in the sliding scale of down payment or loan to value percentages.
CMHC has announced that the increase to payments is in the $5 per month range and have used an example of a 5% down payment (which is said to be approximately 30% of their high ratio portfolio).
The example I am using below represents a different scenario (15% down payment):
Assume the home is purchased for $350,000
Purchasers have a $52,500 down payment (15% or 85% Loan to Value)
This premium would increase from $5,355 to $8,330 ($2,975 or 64.3%)
As this premium is added to your mortgage amount, the impact to a monthly payment (based on a 2.79 rate and 25 year amortization) is $13.76.
Going forward, It is clear that a little more strategy will need to be applied to down payment plans for those in this high ratio zone. For more details on the CMHC Insurance Premium increase, or an evaluation of how this might affect your monthly mortgage payment call Kevin today.
There’s a lot of changes going on in real estate lately, and it can be hard to keep track. So, if you have any questions about property values, inventory, or anything related to the real estate market, feel free to get ahold of Mariko at 604-765-0376 or Radner at 604-319-0200. Text, email, direct message, or call – whatever works for you!
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