Well 2016 was action packed in the mortgage industry with changes to regulations
and it looks like 2017 holds a few surprises too. For the third time in the past four years,
mortgage default insurance premiums are scheduled to increase as of March 17/17.
Just as a refresher; mortgage default insurance is sometimes referred to by
the general public as CMHC fees. CMHC (Canada Mortgage & Housing Corp.) is just
one of the three insurers that provide default insurance in Canada. This insurance
is required when a client obtains a mortgage for the purchase of a home with
less that 20% down payment. It carries a onetime premium of a percentage
of the mortgage amount and is often added to the mortgage.
This insurance protects the mortgage lender from losses in the event that
the home owner defaults (stops making payments) on their mortgage to
the point of eventual foreclosure.
The other two default insurers are Genworth Canada and Canada Guaranty.
Genworth has announced their premiums will also increase to match CMHC on March 17th.
Canada Guaranty has not sent out a press release yet, however it’s inevitable that they will follow suit.
So how much more will it cost the average buyer?
I have ran the following numbers that will give you an idea of what the typical
first time home buyer might be faced with.
Purchase price: $300,000.00
5% down payment: $15,000.00
Mortgage insurance premium today of 3.60% of the mortgage amount: $10,260.00
Monthly mortgage payment now: $1,365.68
Mortgage insurance premium after Mar. 17/17 of 4.00% of the mortgage amount: $11,400.00
Monthly mortgage payment after Mar. 17/17: $1,370.96
Difference in premium: $1,140.00
Difference in monthly payment: $5.28
In order to avoid paying the increased premium, your “live” mortgage application must be
submitted prior to the March 17th deadline. Then the funding of the mortgage can still take place
after the deadline at the lower premium. It is unclear yet how much longer after but I would
expect at least 120 days. Pre-approval applications do not qualify as “live” so an offer to purchase
for the home to be mortgaged must accompany the application.