The cost of mortgage default insurance is about to go up for most consumers, effective May 1st, 2014 CMHC Purchase (owner occupied 1 – 4 unit) mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.
The change does not impact existing homeowners and is expected to raise up to $175-million for CMHC.
For the average Canadian home buyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.
The table below shows the loan to value ratio for the 15% increase.
| Loan-to-Value Ratio | Standard Premium (Current) | Standard Premium (Effective May 1st, 2014) |
|---|---|---|
| Up to and including 65% | 0.50% | 0.60% |
| Up to and including 75% | 0.65% | 0.75% |
| Up to and including 80% | 1.00% | 1.25% |
| Up to and including 85% | 1.75% | 1.80% |
| Up to and including 90% | 2.00% | 2.40% |
| Up to and including 95% | 2.75% | 3.15% |
| 90.01% to 95% – Non-Traditional Down Payment | 2.90% | 3.35% |
CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. In order to be eligible for the current mortgage loan insurance premiums, lenders must submit a request for mortgage loan insurance to CMHC prior to May 1, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
Examples:
In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000.
| Loan Amount | $150,000 | $250,000 | $350,000 | $450,000 |
| Current Premium | $4,125 | $6,875 | $9,625 | $12,375 |
| New Premium | $4,725 | $7,875 | $11,025 | $14,175 |
| Additional Premium | $600 | $1,000 | $1,400 | $1,800 |
| Increase to Monthly Mortgage Payment | $3.00 | $4.98 | $6.99 | $8.98 |
Based on a 5 year term @ 3.49% and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.
| Loan Amount | $150,000 | $250,000 | $350,000 | $450,000 |
| Current Premium | $2,625 | $4,375 | $6,125 | $7,875 |
| New Premium | $2,700 | $4,500 | $6,300 | $8,100 |
| Additional Premium | $75 | $125 | $175 | $225 |
| Increase to Monthly Mortgage Payment | $0.37 | $0.62 | $0.87 | $1.12 |
Based on a 5 year term @ 3.49% and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.
FAQ
Q: I recently have signed for a mortgage and my closing is before May 1 2014 would this affect me?
A: No, it is only if your application was submitted is after May 1st, 2014
Q: I am planning to refinance my home on or after May 1, 2014. Will the increase in premiums and surcharges affect me?
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.
Q: I am planning to buy a home in the coming months and will require a CMHC-insured mortgage.
A: If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.
Sources:
http://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm?WT.cg_n=TWT_MLI
http://www.cmhc.ca/en/hoficlincl/moloin/moloin_013.cfm
Author: Nilay Ertemur
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