On June 1st, 2015, changes will be made to mortgage insurance premiums. This change will affect mortgages where down payments of less than 10% are made.
Mortgage insurance lets Canadian homebuyers purchase their dream home with a lower down payment. Prior to the CMHC’s changes, you were able to purchase a home with as little as 5% down payment. Mortgage insurance is in place to protect the lender from any loses incurred such as borrower default and foreclosure.
What do the CMHC changes mean for me?
If you have purchased a home after June 1st, 2015 with a down payment of less than 10%, your insurance premiums will increase by approximately 15%. The Canada Mortgage and Housing Corporation calculates these premiums through a formula that uses your loan-to-value ratio.
Because insurance premiums are usually attached to your monthly mortgage payments, this 15% increase will not make a huge dent to your finances. You also have the life of your mortgage to pay these premiums and it could be as little as $1,500. This translates roughly to an extra $5 (or so – each case varies) per month that you may not even notice.
For those Canadian homebuyers who are purchasing housing that has more than 1-4 units (such as apartment complexes), you are exempt from the CMHC’s changes to insurance premiums. The 15% increase only applies to traditional housing units where less than a 10% down payment is made.
Can I avoid an increase to my insurance premiums?
You can! If you’re working with an experienced mortgage broker, they will have submitted an application to the CMHC prior to June 1st, 2015, to ensure you still qualify for the lower insurance premiums. The CMHC says they will review all applications to make sure those who purchased homes with a closing date that falls beyond June 1st, are able to avoid the 15% hike to insurance premiums.
If you haven’t purchased your home yet but are thinking of buying property after June 1st, your broker can help you come up with options that suit your needs. For example, if you can put together a down payment of at least 20%, you will not be affected by the CMHC’s changes.
Conversely, if you cannot come up with a 20% down payment, it may work out better in the long run for you to pay the supplementary $5 monthly payment over the course of your mortgage.
Whatever your options are, Northwood Mortgage™ can help. For more information about the CMHC’s recent changes to the mortgage insurance premiums, contact us today!