The Canadian National Housing Agency has increased the Premium amount for mortgages by 15%. This insurance premium is charged when home buyers have less than 20% down payment to put on their purchase. This increase will take affect as of May 1st, 2014. Before the increase was announced, premiums were in the range between 0.5% – 2.75%. However, with this increase the ranges are now between 0.6% – 3.15%. The individuals who would be most impacted by this increase are the home buyers who are only putting 5% down payment. Since this is the lowest amount you can put down on a home, it would hurt them the most and take a big chunk out of the down payment.
For Example, someone requiring a $250,000.00 dollar mortgage, under the current insurance premium rate would pay $6,875.00 dollars. With the new rate hike coming into affect as of May 1st, 2014, the new premium would be increased to $7,875.00. This increase totals up to $1,000.00 dollars and in the mortgage world, we know what $1,000 dollars difference can sometimes make. If this mortgage was at a 25 year amortization, and a rate of 3.49%, that is an extra $4.98 dollars they would be paying a month for 25 years! That works out to $1,494.00 dollars in 25 years!
Clients who already have an existing mortgage with CMHC as the insurer, will not have to worry about this premium increase as it only applies to new clients as of May.1st, 2014. All Mortgage Lenders require this insurance if less than 20% down payment is put towards the mortgage as it is a safety precaution in case of default were to ever occur. Essentially it is meant to protect the buyer and the economy as a whole.
Here is a chart courtesy of the CMHC website to help you understand the increases better:
|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%|
Contact Robert Clancy today to find out if your mortgage needs require an insurance premium or not!