As of March 17th, Candians will be spending more money on mortgage default insurance.
The impact of the new mortgage regulations that came into effect in October of 2016 are what the Canada Mortgage and Housing Corp.(CMHC), is giving as reason for the need to increase premiums for the third time in the past few years.
CMCH is the Crown corporation that controls the majority of the mortgage default insurance market in Canada. According to Steven Mennill, Senior Vice- President, Insurance- “We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” and that “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
CMHC-states that for the average insured home buyer, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment.
Premiums are calculated based on the loan-to-value ratio of the mortgage being insured. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and repaid over the life of the mortgage as part of regular mortgage payments.
Here is what it might look like for a local Edmonton area resident using a mortgage valued at $400,000 with 2.89% interest rate and a 25 year amortization.
- Previously with 5% down- the insurance would cost $14,400.00. Added to the mortgage, the payment would be= $1937.81
- As of March 17th, the insurance will now cost $16,000, increasing the monthly payment to $1945.30. That is a $1600 cost difference with an increase in monthly payments of $7.49.
For 10% down it is even more significant as the increase in premium is even greater. Using the same example:
- Previously with 10% down the insurance would have been $9600.00, and the monthly payment would be $1915.37.
- As of March 17th, the insurance will now cost $12,400 with a monthly payment of $1928.46. That is an increase in $2800.00 and increases the monthly payment by $13.09.
A few notes about Mortgage Loan Insurance and the premium table below:
- Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
- CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after March 17, 2017. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to this date, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
- The changes do not impact mortgages currently insured by CMHC.
CMHC’s standard mortgage loan insurance premiums will be changing as follows:
|Loan-to-Value Ratio||Standard Premium (Current)||Standard Premium (Effective March 17, 2017)|
|Up to and including 65%||0.60%||0.60%|
|Up to and including 75%||0.75%||1.70%|
|Up to and including 80%||1.25%||2.40%|
|Up to and including 85%||1.80%||2.80%|
|Up to and including 90%||2.40%||3.10%|
|Up to and including 95%||3.60%||4.00%|
|90.01% to 95% – Non-Traditional Down Payment||3.85%||4.50%|