CMHC announced on April 2nd that CMHC insurance premiums will increase for buyers putting less than 10% down, effective June 1st 2015. Historically CMHC would re-evaluate insurance premiums on an as needed basis, with no specific schedule, however last year CMHC made a decision to review premiums annually and reassess areas of perceived higher or lower risk. The category of less than 10% down (essentially those buyers putting 5% down) are perceived to be higher risk therefore an increase in premium has applied.
Who will this impact?
Anyone who gets a mortgage approved on or after June 1st 2015 that is putting less than a 10% down payment on their purchase. This means if you are in the market to buy a home, you need to find a home, and get your mortgage approved prior to June 1st to get today’s insurance premium. We expect that similar to past premium increases that the lenders will require all mortgage applications to be submitted approximately 1 week before the premium change, as the mortgage must be approved by both the lender and CMHC (not just submitted for an approval) before June 1st 2015. Therefore, if you are looking at homes and are putting less than 10% down, aim to find your new home and negotiate an excepted offer by May 15th to give you lots of time to get your mortgage approved.
How much will the insurance premium go up?
The insurance premium for putting less than 10% down will increase to 3.60% from 3.15% for a traditional down payment (savings, gift), and to 3.85% from 3.35% for a non-traditional down payment (line of credit, loan).
1. Be sure that your closing date is set within the rate hold period offered by your lender. If rates are higher after your rate hold period expires, and you have qualified on a 5 year fixed rate, your application may have to be resubmitted to CMHC at the new insurance premium rate.
2. A pre-approval is not a full approval. In order to ensure you are able to access today’s insurance premium you have to have an approval on a specific property.
3. Rate holds offered by lenders vary from as few as 30 days to as long as 6 months. Some lenders offer 12 month rate holds on new builds, however the interest rate is generally quite high. A mortgage broker can help ensure you are placed with a lender that offers the rate hold you will need to secure today’s insurance premium amount.
If you have any questions about how this may impact you, please feel free to post a question on our Facebook page, or click here to see all the other ways to contact us.