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Mortgage Default Insurance

Mortgage Insurance is designed as a safe guard for your mortgage in the event that you cannot make your payment.  If you cannot provide a 20% down payment, you will require default insurance. The need for default insurance is governed by law. According to Scotia Bank:

By law, Canadian banks can only provide mortgage financing to qualified homeowners with at least a 20% down payment, unless the mortgage is insured against default. Mortgage default insurance helps buyers purchase a home and begin building equity sooner. Default insurance may also be required … when a borrower has more than a 20% down payment, if the property is in a remote location or if the borrower is qualifying under a special program considered a higher risk.

The mortgage premiums are added by banks to the principal amount of the loan. These payments are made over the same amortization period.  Because of this many people don’t even realize that their mortgage payments include insurance costs.

Mortgage Payment Increases

Homeowners with Canadian Mortgage and Housing Corporation (CMHC) insured mortgages, will see a rise in monthly payments as of March 17, 2017.  If you were planning to deposit less than 20% down payment for your next Mortgage, you will be directly affected by this increase. After March 17, there will be an average increase in monthly payments, approximately $5 a month or $60 per year.

Bellow is an estimate of the increase in repayments will be based off a loan amount. Please note that the below is based off a downpayment amount between 5% and 9.99%.

Estimated Monthly Payment Increases

$2.82

Monthly Increase on a
$150,000 Loan

$4.70

Monthly Increase on a
$250,000 Loan

$6.59

Monthly Increase on a
$350,000 Loan

$8.47

Monthly Increase on a
$450,000 Loan

$10.35

Monthly Increase on a
$550,000 Loan

$15.98

Monthly Increase on a
$850,000 Loan

Estimated Annual Payment Increases

$33.84

Annual Increase on a
$150,000 Loan

$56.40

Annual Increase on a
$250,000 Loan

$79.08

Annual Increase on a
$350,000 Loan

$101.64

Annual Increase on a
$450,000 Loan

$124.20

Annual Increase on a
$550,000 Loan

$191.76

Annual Increase on a
$850,000 Loan

Based on a 5 year term @ 2.95% and a 25 year amortization.

*Premiums are based on Alberta with no sales tax. Source: CANADA MORGAGE AND HOUSING CORPORATION

Why Is CMHC Increasing Premiums?

The Canadian government increased the premiums to minimize risky borrowing behaviour. Furthermore, boosting long-term financial stability within Canada. As of January 1, 2017, mortgage insurers have been required to hold additional capital. This new holding capital requirement has been set by the Office of the Superintendent of Financial Institutions.

Previous Increases In Premiums

The premium increase is not a rarity as the Crown Corporation has increased insurance premiums annually for the past 3 years. Approximately 15% in May 2014,  15% for those paying less than 10% down in June 2015. In an interview with Rew.ca, Steven Mennill, the CMHC Senior Vice President of Insurance stated,

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home. Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

Therefore it is rare that the amount will increase again. This move has been strategically made to deter people from loaning amounts that they cannot afford. All things considered, this new increase encourages people to only borrow what they can afford this shouldn’t increase again. However, there has been incremental increases annually so it would be wise to invest before further premiums are put in place.

Moving Forward with the New Premiums

Now is the time to buy. If you were considering buying a house in 2017. Then it is best to apply for a Mortgage before March 17 and avoid the upcoming increases. The increased rates will only impact mortgage loan insurance requests submitted on or after that date. If you have any questions about the new premiums, or you would like to submit a mortgage application. Speak with a specialist, tim@cgymortgage.com