As of June 1, 2015, CMHC is increasing the Mortgage Insurance Default premium percentage for potential homeowners with less than 10% down payment from 3.15% of the mortgage amount to 3.6% of the mortgage amount.
If you get your commitment to me or the lender before June 1st, you are fine, closing date doesn’t matter. This take in effect June 1. Pre-approvals done before June 1st do not count which is why make sure to use the right Property ladder tips while getting your first house as this can save you a ton of cash and get you the perfect house you have always desired.
The spring market in Ottawa could get a little crazier now and maybe this will get some potential clients off the fence if they want to save some money.
I equate this move to the car rental companies increasing the premiums for insurance for drivers 20-25 instead of just banning them from renting all together. I guess this move is better than increasing the minimum down payment to 10% which many analysts speculated could happen.
Why do this? Well CMHC premiums across the board last May (2014) and announced that they would be doing annual check-ups to make sure they were hitting their targets. I guess this move helped hit a target. They want to boost their target capital reserves to 220% (Do not know where they got this benchmark) above the minimum bench mark set by the Office of Superintendent of Financial Institutions, up from 200%, not to “cool” the housing market.
From Globe and Mail: Mortgages with lower levels of equity are typically more vulnerable to a housing shock and require higher levels of capital reserves to account for potential losses, which means higher premiums for risker borrowers. Less than 10% down payment equates for 56.8% of CMHC’s borrowers as reported last quarter.
As of writing this article Genworth and Canada Guarantee, Canada’s other leading mortgage default insurance companies, have yet to announce if they will follow in CMHC’s footsteps but are reviewing the moves as I write. Update- Genworth has followed suit.
What does this mean for people in Ottawa??
I used OREB’s numbers for February 2014 as they are the latest for these examples.
Example 1– The price of an average non-condominium residential property in Ottawa was $380,358.
A 5% down payment would then be $19,018. Under the old CMHC premiums you would have a premium of $11,382.21 to add to the mortgage and amortize over 25 years or less. You would still have to pay the PST at time of closing of $910.58.
Under the new CMHC premiums, you would have a premium of $13,008.24. A difference of $1626.03 and your PST would increase to $1,040.64.
A 10% down payment would be $38,036 and your premium would be $8,215.73 and PST of $657.26.
As for the mortgage at 5 year fixed rates right now (around 2.59% or lower) the old monthly payment would be $1686.42 and new payment would be $1693.78.
Example 2– The price of an average condominium in Ottawa in February was $267,880.
A 5% down payment would then be $13,394. Under the old CMHC premiums you would have a premium of $8,016.31 to add to the mortgage and amortize over 25 years or less. You would still have to pay the PST at time of closing of $641.31.
Under the new CMHC premiums, you would have a premium of $9,161.50. A difference of $1145.19 and your PST would increase to $732.92.
A 10% down payment would be $26,788 and your premium would be $5,786.21 and PST of $462.89.
As for the mortgage at 5 year fixed rates right now (around 2.59% or lower) the old monthly payment would be $1187.72 and new payment would be $1192.90.
All in all I am not a fan of the move from CMHC but they have several analysts that I pray are working for Canadian’s interests and do not get bonuses based on the increases of these premiums.
If you have any questions, comments, please let me know! 613-294-4475 or nick@mortgageinottawa.com
