CMHC Mortgage Insurance Premiums Increase — How will the changes affect you?

Effective today, June 1, 2015, Canada Mortgage and Housing Corporation (CMHC) is increasing mortgage insurance premiums by 15 per cent for homebuyers making less than a 10 per cent down payment.

toronto-mortgage-insurance-cmhc

Mortgage insurance is typically required by lenders if a homebuyer’s down payment is less than 20% of the total purchase price of the home. The insurance is paid by the homeowner and is usually tacked onto their monthly mortgage payments. With the current state of the Toronto real estate market, many home buyers cannot afford a 20 per cent down payment—the insurance makes ownership more accessible for many, and benefits first-time buyers by enabling them to make a 5 per cent down payment on a home. It also benefits lenders by protecting them in the event that payments are not made and from potential defaults.

For an example of how the policy change might affect you, let’s pretend you’re buying a $600,000 home. With a 5 per cent down payment of $30,000, you would need a $570,000 mortgage. Before June 1, 2015, your premium would have been $17,955, however, at the new rate of 3.60 per cent, the cost would be $20,520— a difference of $2565.

Changes effective June 1, 2015

95% Loan-to-Value

Loan Amount

$150,000

$250,000

$350,000

$450,000

Old Premium

$4,725

$7,875

$11,025

$14,175

New Premium

$5,400

$9,000

$12,600

$16,200

Additional Premium

$675

$1,125

$1,575

$2,025

Increase to Monthly

$3.12

$5.20

$7.29

$9.36

 

With the new changes, there are many things to consider if you are planning to purchase a home with a smaller down payment. A down payment of 5 per cent, less the new premium of 3.6 per cent leaves you with only 1.4 per cent equity in your home. Although it might seem like your monthly payments are only going up by a few dollars, it is important to think about the impact a down payment of 5 per cent combined with the premium increase, would have on your investment in the long-term.

 

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