mortgage_insuranceLast Friday the Canadian Mortgage and Housing Corporation, (CMHC), announced that it will raise mortgage insurance premiums starting on May 1st of this year. The increase in premiums is expected to raise up to $175 million for the CMHC and help to mitigate risk to taxpayers. “The higher premiums reflect CMHC’s higher capital targets, CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability if the financial system,” said Steven Mennill, CMHC’s vice-president of Insurance Operations.

What is Mortgage Loan Insurance? Mortgage loan insurance is charged to any mortgage holder who obtains a mortgage from a financial institution covered by the Bank Act and whose down payment is less than 20%. The insurance covers the mortgage lender’s costs in case you default on your loan.

So what does this increase in insurance premiums mean to you? If you already have a mortgage or are purchasing a new home or 1-4 unit rental property whose mortgage will be submitted before May 1st, not much, as you won’t be affected; however anyone purchasing a home or 1-4 unit rental property with less than 20% down, after May 1st will be subject to the increased premiums.

The CMHC estimates that the increase should cost the average Canadian an extra $5 a month on their mortgage, and is not expected to cause a buying frenzy by those looking to get into the real estate market before the increase. For an idea of what this would cost the average Barrie home buyer, take a look at our chart below comparing the old rates to the new rates:

Based on an average home price in Barrie of approximately $315,000, with a 3.69% APR on a 25 year amortization with a monthly payment:

Down Payment

Current Premium

Current

Monthly Cost

Increased Premium

NEW

Monthly cost

5% ($15,750)

2.75%

$1,566.15

3.15%

$1,572.25

10% ($31,500)

2.00%

$1,472.89

2.40%

$1,478.67

15% ($47,250)

1.75%

$1,387.65

1.80%

$1,388.34

20% ($63,000)

–

$1,283.56

–

$1,283.56

The average increase for the Burnaby home owner’s monthly mortgage payment is $6, except at the 15% down payment level, when the increase is only $1 a month.

Even with the increase in premiums, the message when it comes to mortgages is the same; you’ll pay less for your mortgage if you can provide a larger down payment.

Please pass this article along to any friends or family who may be interested and as always please contact us with any questions about this insurance premium increase or the Burnaby real estate market.

Sincerely,

The Lotus Yuen Team

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