By Mark
Schadenberg
The percentages are
going up . . . 2.75 in early 2014 to 3.15 after May 1, 2014 and now
up to 3.60 after June 1, 2015.
I'm not talking about
the ERA of the Blue Jays bullpen, but rather mortgage insurance rates
posted by the Canadian Mortgage & Housing Corporation (CMHC),
which is a federal government institution created to assist
first-time home buyers or generally people which could be a risk to
buy a home because they had less than (perhaps) a 20% down payment.
After June 1, if you
have only 5% down as a minimum (or mathematically also less than 10%
as a down payment; loan-to-value ratio of 90.01 to 94.99) your CMHC
fee will be 3.60% of your total loan amount.
Soon after CMHC
announced it would increase its insurance percentage, Genworth
quickly followed suit.
If you have a
non-traditional down payment planned, your CMHC or Genworth fee will
be 3.85.
Several internet links
are posted below, but I lifted this comment from The Globe And Mail
piece:
()()()()()()()()()()()()()
“Our
decision to increase premiums was an independent decision, and we
believe that our premium increases are in the best interests of our
stakeholders,” CEO Stuart Levings said in an e-mailed statement to
the Globe and Mail. “Genworth Canada conducts its own annual
pricing review and has always supported the need for premiums to
appropriately support the level of risk being insured and the amount
of capital required to support that risk.”
()()()()()()()()()()()()()
% % %
I find it rather
ironic, that this CMHC fee system was created to assist home buyers,
but by increasing the fee to 3.60 it becomes an indicator of three
things, in my opinion.
I'm not an economist,
but somebody somewhere believes interest rates will increase in the
next two years, thus making it difficult for home owners to maintain
living in their current residence if they are unable to afford the
mortgage commitment at renewal time.
I am guessing there is
a consensus home prices in Canada's largest centres (including the
GTA) and in provinces like Alberta and Saskatchewan, will decrease
due to market strains including an increase in listings and lower
sales due to a slowing economy in the prairies due to the crude oil
price fluctuations.
My third reasoning is
one which would appear to be obvious, but it's not really as the
lending institutions insist on coverage for the risk they are taking
on. Remember, if CMHC eventually must sell a home under 'power of
sale' for less than what was owed to the bank --- the bank still gets
its money from CMHC. The protection is for the bank (lender) and not
the consumer.
It's all about taking a
risk, explains a Carleton University professor:
“If
the purpose was to ensure that there were adequate reserves against
future losses, then this makes sense because their biggest losses
will be at the end of the continuum with small amounts of down
payment and that’s exactly the category where they increased the
premium.” said Ian Lee, a professor with the Sprott School of
Business at Carleton University.
()()()()()()()()()()()()()
Not to be too critical
but the safety net should favour the consumer more and not the banks
which already have billions.
If a consumer had to
bow out of their mortgage due to a job loss, serious illness,
marriage separation, out-of-province relocation to find work, or
other circumstance that same consumer would usually have quite a
penalty to pay as well.
CMHC, which also offers
great advice to home buyers as can easily be seen by sifting through
their website, is also attempting to make sure they always remain
solvent. This fact was noted in the original Globe And Mail story
announcing why the increase was happening.
()()()()()()()()()()()()()
The
changes come as part of a broader plan by the agency (CMHC), announced last
August, to boost its target capital reserves to 220 per cent above
the minimum set by the Office of the Superintendent of Financial
Institutions, up from 200 per cent previously.
The
increases only apply to new mortgages for borrowers with small down
payments. Those who put down more than 10 per cent of the purchase
price aren’t affected.
…
One thing is clear: By
limiting increases only to borrowers with less than 10-per-cent down
payments, the federal corporation is concerned that it was
underpricing the risk on the most indebted borrowers.
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 riskier
borrowers.
()()()()()()()()()()()()()
If you're thinking
about buying a home this spring, don't wait as you have until June 1
to have a firm-and-binding offer. The closing date can certainly be
after June 1.
Since I realize
possible buyers are always 'mouse in hand' looking through
www.realtor.ca,
call me soon to continue your house hunting. There's lots of good
home on the market right now.
I guess I'm sound
critical of the system, but any amateur mathematician will stare at
amortization charts and realize quickly that lending institutions
make a tremendous profit (even with our low low low interest rates
currently) from the home-owning consumer in their initial five years
of home ownership.
The pendulum has swung
from a purchaser possibly receiving money back at closing (with a
slightly higher interest rate, of course) 10 years ago (to assist in
closing costs and initial furniture buys) to a much more strict
borrowing system.
LINKS:
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
Facebook:
Mark Schadenberg, Royal LePage Triland
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