Percentage modifications introduced by CMHC, effective May 1
By
Mark Schadenberg
The
race is on.
Today,
is March 1, so home buyers have exactly two months to purchase a house requiring
a high ratio mortgage, to avoid an increase in the Canadian Mortgage &
Housing Corporation (CMHC) insurance fees.
It
was predicted that CMHC was to announce an increase and the press releases were
issued yesterday (on Feb 28).
The
odd item about the news is that the CMHC fee is not really insurance to protect
you if you default on your mortgage payments, but rather protects the bank and
its ability to fully recoup the loan you (all borrowers actually) had previously
qualified for.
I’m
not sure on the exact date of the previous change in percentages, but it’s been
about a dozen years since a modification had occurred and the change is a
significant 0.40% for the high-ratio mortgage buyers with just 5% (loan-to-value
ratio) as a down payment – 2.75% will become 3.15% in calculating the
insurance.
Up
to 90% (or under 10% down) will move up from 2.00 to 2.40, and 85 – 89.99
changes modestly from 1.75 to 1.80.
“CMHC’s
capital holdings reduce Canadian taxpayers’ exposure to the housing market and
contribute to long term stability of the financial system,” says Steven Mennill,
vice president of insurance operations at CMHC, in the press release on their
website.
The
change amounts to $5 per month on a mortgage payment (25-year amortization), but
keep in mind buyers are pre-qualified based on what they can afford per month on
a math calculation factoring in wages, credit already committed to (credit
cards, car payments, student loans, etc), and your credit rating (beacon
score).
The
entire CMHC press release and large chart is included below in the link, but it
also includes purchasing income property of four or fewer
units.
CMHC
is quick to note that the insurance permits consumers to buy a home with a
minimum of 5% as a down payment and still receive an interest rate equivalent to
a buyer with more than 20% down. The caveat is obvious – good steady job and
good credit score.
The
key is that the closing date of your purchase can be after May 1, but the formal
loan request must be made before that date.
In
math terms, a $150,000 mortgage on 95% loan-to-value is currently charged a
$4,125 premium (150,000 x 2.75). After May 1, that number becomes $4,725
(150,000 x 3.15).
The
increase at 85% loan-to-value is very insignificant.
I
would guess there could be a quick surge in sales over the next two months to
beat the race to May 1. A similar occurrence happened a few years ago when the
GST/HST switch happened and suddenly real estate commission, home inspectors,
lawyers (etc) were all required to collect more taxes.
Call
me today, to begin your house hunting.
Also,
be sure to contact your bank or preferred mortgage broker too and confirm your
standing. In other words, be sure to be pre-qualified and have a guaranteed
interest rate, then don't assume any more large debt (large furniture purchase
on credit or booking an expensive vacation on a credit line)
LINK:
http://www.cmhc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm
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Mark Schadenberg, Sales
Representative
Senior Real Estate Specialist (SRES
designation)
Royal LePage Triland Realty
757 Dundas St, Woodstock
www.wesellwoodstock.com
(519) 537-1553, cell or
text
Email:
mschadenberg@rogers.com
Twitter:
markroyallepage
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