Last year, the federal government changed some of Canada’s mortgage rules. Among the changes was an increase in down payment requirements for properties over $500,000.

Anyone who’s buying a home with less than a 20% down payment is required to have high ratio mortgage insurance. The premiums for this insurance are being increased for the second time in as many years. In 2015, the Canada Mortgage and Housing Corporation (CMHC) hiked premiums by as much as 15% for some borrowers. The new increase takes effect on March 17, 2017.

Who does this affect?

No doubt this change will impact first-time homebuyers, but it will also affect anyone who is purchasing a home despite their level of down payment because of the need for insurance. A few companies provide this type of insurance; however, the two leading providers are the CMHC and Genwworth Financial. One of the primary differences between these two leaders is that one is government owned (CMHC), and the other is a private company (Genworth). The fee structure for both entities is identical (Standard Premiums*) and is currently as follows:

 

 

Existing CMHC Insurance Premium Table

Loan-to-Value

Premium on Total Loan

Premium on Increase to Loan Amount for Portability

Up to and including 65%

0.60%

0.60%

Up to and including 75%

0.75%

2.60%

Up to and including 80%

1.25%

3.15%

Up to and including 85%

1.80%

4.00%

Up to and including 90%

2.40%

4.90%

Up to and including 95%

3.60%

5.65%

90.01% to 95% — Non-traditional down payment**

3.85%

*

Existing Genworth Insurance Premium Table

Standard Premium Rate Chart

Includes the Following Products*

LTV Ratio

Premium Rate

Top-Up Premium

Homebuyer 95 Program

Borrowed Down Payment Program*

Family Plan Program

Progress Advance Program

New to Canada Program

Purchase Plus Improvements Program

Vacation/Secondary Home Program (Type A)

Up to 65%

0.60%

0.60%

65.01% – 75%

0.75%

2.60%

75.01% – 80%

1.25%

3.15%

80.01% – 85%

1.80%

4.00%

85.01% – 90%

2.40%

4.90%

90.01% – 95%

3.60%

5.65%

*Other premium charts are available that are dependent on other types of purchase (i.e., vacation and secondary homes).

See the following websites for details of all premiums available:

https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

http://genworth.ca/en/lenders/premium-rate-table.aspx

 

What does the change cost?

The cost will vary depending on your equity position—how much of a down payment you’ve made on your home purchase.

Here’s an example of a typical home purchase in Alberta:

Today’s Premium

March 17, 2017 Premium

Purchase price                     $400,000.00

Purchase price                     $400,000.00

Down payment of 5%         $ 20,000.00

Down payment of 5%         $ 20,000.00

Mortgage required              $380,000.00

Mortgage required              $380,000.00

Insurance premium %                 3.60%

Insurance premium %                 4.00%

Insurance premium $         $ 13,680.00

Insurance premium $         $ 15,200.00

Mortgage financed              $393,680.00

Mortgage financed*            $395,200.00

The change represents an increase in the premium of $1,520.00 or 11.1%.

The change in the mortgage payment for this example is as follows:

Mortgage Terms Selected

Monthly Payment

Amortization: 25 years

Term: Five-year fixed

Interest rate: 2.84%

Today’s payment                                 $ 1,831.00

March 17, 2017 payment   $ 1,838.00

Interest mortgage term       $51,630.00

Interest mortgage term       $51,821.00

The change represents an additional $7 per month for the first five years of the life of the mortgage.

Curious about how the new mortgage rules affect you? Contact us today via email or give us a call at 1.877.378.8728

 

 

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