Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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Canada Housing and Mortgage Corporation (CMHC) has announced that it will raise the mortgage default insurance premium it charges the borrowers with small down payments (normally 5% to 20%).

If you buy a home after May 1st and do not have more than 20% down payment then on an average you will be taking an additional $5 x 12 x 25 = $1500 more on the mortgage amount.

The new changes will take effect from 1st May 2014. Premiums are increasing across the table. The premium is going up approximately by 15% for all types of occupancies it currently insures.

The decision to increase the premium was driven by mainly three factors.

According to Steven Mennill, CMHC’s Vice-President, Insurance Operations.

  1. To increase the capital targets that are consistent with Canadian and international industry trends.

  2. To make the financial system more stable and resilient, in the long term.

  3. To reduce Canadian taxpayers’ exposure to the housing market.

Good to know –

CMHC made it clear that regardless of closing date any application submitted before May 1st will pay according to the current premium calculation. Any insurance application submitted after May 1st will be treated according to the new chart.
95% loan to value premium changes 85% loan to value premium changes

The New chart will look like –

Loan-to-Value Ratio

Standard Premium (Current)

Standard Premium (Effective May 1st, 2014)

Up to and including 65%

0.50%

0.60%

Up to and including 75%

0.65%

0.75%

Up to and including 80%

1.00%

1.25%

Up to and including 85%

1.75%

1.80%

Up to and including 90%

2.00%

2.40%

Up to and including 95%

2.75%

3.15%

90.01% to 95% – Non-Traditional Down Payment

2.90%

3.35%

Genworth:

Their story is similar to CMHC. It did not take them long to announce similar increase in the premium.