CMHC has announced another money grabbing initiative aimed at the people that seem to need the money the most to realize a dream of home ownership. They are consistently raking in record profits and bracing themselves for any defaults in the Canadian housing market which has not come close to happening yet. This is the first increase to the premiums since 1998. Why do it now? I don’t know, profit and bonuses are never frowned upon by corporations. CMHC is bumping its premiums by .10 to .40 basis points.
Anyways, CMHC, Genworth (the country’s biggest private default insurer and one that many of the lenders I use), and soon Canada Guaranty announced on Friday, February 28th that they will be increasing premiums across the board for their insurance.
When does it go into effect?
If you apply for a mortgage that requires less than a 20% down payment after May 1, 2014 you will experience the increased premiums. Applying means that I have your full personal information plus the property information to give to the CMHC. So if you do not have your home information before then, you are out of luck.
What are the new premiums and what are some examples?
At 5% down payment (the lowest downpayment you can make)(Remember you still have to have 1.5% of the purchase price to prove adequate savings for lawyer fees/closing costs) the premium increases from 2.75% to 3.15% plus you still have to pay the 8% PST in Ontario.
On a $300,000 purchase at 5% down you are looking to get a mortgage of $285,000. You are getting a 3.14% rate (going rate as of March 1st,2014) and amortizing it over 25 years.
Old CMHC your premium would be $7837.50 so your PST at time of closing would be $627.00. Your monthly mortgage amount would be $1,406.96 and balance remaining at the end of a 5 year term would be $250,974.98 unless you make any pre-payments.
New CMHC your premium would be $8977.50 so your PST at time of closing would be $718.20. Your monthly mortgage amount would be $1,412.44 and balance remaining at the end of a 5 year term would be $251,951.82.
In conclusion I am not happy with the changes, but they are what they are. CMHC will be announcing future premium hikes in the 1st quarter of every year if there needs to be any going forward.
If you have any more questions or want me to run through any scenarios for you, please do not hesitate to text or call me at 613-294-4475 or email me at nick@mortgageinottawa.com
Thank you for reading!
Nick
