CMHC increases likely to have little effect

Alberta registration changes are another story*

nolanCanada Mortgage and Housing Corp. (CMHC) recently announced it would be implementing  higher premiums for borrowers who have less than a 10 per cent down payment.

The move means Canadians seeking a mortgage with a loan-to-value ratio of up to 95 per cent will see their premiums jump about 15 per cent from 3.15 to 3.6 per cent. For those with a loan-to-value ratio from 90.01 to 95 per cent, their premiums will climb from 3.35 to 3.85 per cent.

The Crown corporation’s move, which takes effect June 1, has since been matched by private-sector insurer Genworth Canada. Canada Guaranty, the country’s third main mortgage insurer, had not made an announcement as of press time.

Financial institutions generally require mortgage loan insurance for buyers making a down payment of less than 20 per cent.

“The premium increase for homebuyers with less than a 10 per cent down payment reflects CMHC’s target capital requirements which were increased in mid-2014,” said CMHC.

In other words, CMHC assessed its portfolio – which it does regularly – and determined increased capital was required to offset the potential risks of higher loan-to-value mortgages.

However, consumers will hardly notice the change. Insurance is usually added to the top of a mortgage, and is paid for during the course of normal monthly payments.

For example, CMHC noted a borrower who obtains a $350,000 mortgage, assuming a 25-year amortization period, with a five per cent down payment will pay an additional premium of $1,575 over the term, but only $7.29 per month – less than a cup of coffee per week.

To put CMHC’s recent move into perspective, the 3.85 per cent premium on mortgages with a five per cent down payment is still below the four per cent seen on 40-year amortizations in the early 2000s.

In Calgary, the changes will have little to no effect to sales or pricing.

Of greater impact will be those made through the new provincial budget, which increased the upfront costs of transferring title and registering a mortgage by as much as $1,000.

Lender selection will also become more important. For example, some financial institutions offer collateral-charge mortgages that provide borrowers with more money after closing without the need to refinance or pay a lawyer. Yet borrowing more money is now more expensive in Alberta following the five-fold increase in a mortgage variable registration fee (from $1 to $6 per $5,000). A mortgage at one bank could now cost hundreds of dollars more than a mortgage at another.

Recent policy changes and insurance premium announcements continue to drive home the importance of getting more than one opinion when looking for a mortgage. Ultimately, it could save you thousands of dollars.
An Accredited Mortgage Professional (AMP) at Mortgage360 can help you find the right one. Call us today.

Nolan Matthias holds a degree in Economics, is an Accredited Mortgage Professional, and the author of The Mortgaged Millionaire. Mortgage360 was founded by Nolan & Jen Matthias in 2010, and established itself as a standalone brokerage in November 2014.

* This content was produced by CREB®Now’s advertising department, in consultation with Mortgage360. CREB®Now’s editorial department was not involved in its creation

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