CMHC Mortgage Insurance Premium Increase

CMHC Announced that their mortgage default insurance premiums will increase May 1st 2014.  CMHC’s Vice-President, Insurance Operations, Steven Mennill was quoted saying:

“The higher premiums reflect CMHC’s higher capital targets. CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”(1)

This change does not impact any existing mortgage, and does not impact any buyer who has already had their mortgage approved.  This change will impact any homeowner who does not have an approval that carries CMHC insurance prior to May 1st 2014.  To clarify, an approval is where you have received a mortgage approval (or commitment) for a mortgage on a specific property.  If you have a pre-approval, you must have received a mortgage commitment prior to May 1st 2014 in order to get todays lower CMHC insurance rates.

With the average Canadian house price for January 2014 at $388,553 (2), for someone putting 5% down and selecting a 25 year amortization, the difference in the mortgage payment would be approximately $7.00 per month.  The difference in the actual insurance premium (which is generally added to the mortgage amount) is approximately $1477, and when you factor in the 8% tax payable on top of the insurance premium, this totals a $1595 difference.

Another way to look at is that this increase, based on a 5% down payment, is essentially the same effect of paying an interest rate 0.035% higher after the May 1st rate premium increase, compared to today.

In summary, this change does not impact any existing mortgage, or any mortgage that has already been approved.  It will impact any mortgage approved on May 1st or later.  The typical Canadian homebuyer who puts 5% down on their mortgage on or after May 1st can expect approximately an additional $7.00 per month mortgage payment on their mortgage.

 

AUTHOR:

Doug Adlam

Mortgage Broker & President

Champion Mortgage Inc.

 

References:

1. CMHC to Increase Mortgage Insurance Premiums.  Accessed February 28 2014. 

Source: https://www.cmhc-schl.gc.ca/en/corp/nero/nere/2014/2014-02-28-1100.cfm

2. National Average Price Map. Accessed February 28, 2014.

Source: http://crea.ca/content/national-average-price-map

NOTE: Mortgage Scenario assumes a 5% down payment from traditional sources, 25 year amortization, monthly payments, compounded semi-annually, at 3.29% interest on a 5 year fixed term.