Mortgage Insurance Premium Increase Announced: Get Your Mortgage before May to Save Money
By Robert Russo, Mortgage Consultant for INVIS
If you’re in the market for a new home, and have less than a 20% down payment, you should think about getting your mortgage before May 2014. For the first time in more than a decade, Canada Mortgage and Housing Corporation (CMHC) is raising premiums for insuring mortgages on Canadian homes: an average 15%. A crown corporation, CMHC is Canada’s largest mortgage insurance provider. Private insurer Genworth has followed suit with a matching increase in premiums.
How does it hit your wallet?
Here’s an example: A homebuyer with a $400,000 mortgage and a 5% down payment will pay an additional $1,520 for their CMHC premium up front right away, which will be added to your loan. The higher the cost of the home, the more your CMHC fee will go up.
Who needs mortgage insurance?
Canadian homebuyers are required to have mortgage insurance if they have less than 20% equity in their homes. The insurance provides protection for the lender in the case of a default. In general, the system works well: Canadians have a vested interest in maximizing their down payment, and in building some equity in their homes, and a prudent mortgage insurance system has contributed to a stable mortgage market in Canada.
The last change in premiums was a decade ago: when CMHC actually lowered the rate. Experts say the increase in premiums is probably overdue – as insurers must hold adequate capital reserves.
Will this be the last increase for the next ten years?
CMHC expressed plans to announce its premiums in the first quarter of every year going forward. So stay tuned in early 2015 for any more news. In the meantime, there’s no cause for alarm for Canadian homebuyers, but there is a strong incentive for homebuyers to visit their mortgage broker right away if they’re considering a new home purchase.
This change will come into effect on May 1, 2014, however, homebuyers will be able to access the current lower rates if they have bought a home and are approved before the May 1 deadline, even if they have a later closing date.
In short, if you’ve got less than a 20% down payment, then you owe yourself a visit to your mortgage broker today.
For more information contact Robert Russo, Mortgage Consultant for INVIS.
Robert Russo is a Mortgage Consultant located in Kelowna, BC.
He is not an employee nor an affiliate of Mission Group.