Earlier this week CMHC raised eyebrows with a pre-announcement that they would be making an announcement Friday morning. Speculation was rampant – would they be raising the minimum down payment from 5%? Would a conventional mortgage require a down payment larger than 20%?
Today we learned it was nothing that exciting.
Effective May 1st, 2014 CMHC mortgage insurance premiums will increase by approximately 15%, on average, for all loan-to-value ranges.
CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to May 1, 2014, regardless of the closing date.
Will This Affect The Real Estate Market?
CMHC stated that “this is not expected to have a material impact on the housing market.” CREB’s economist echoed the same sentiments about the market here in Calgary.
You may be thinking, ‘how could a 15% increase in premiums not impact the market?’ Fifteen percent seems like a lot, but let’s look at an example:
Using a 95% loan-to-value (5% down) with a loan amount of $450,000 on a 5 year term at 3.49% and a 25 year amortization, the current premium would cost $12,375.
($450,000 X 2.75% = $12,375)
The new premium cost beginning on May 1st would be $14,175 – an increase of $1,800.
($450,000 X 3.15% = $14,175)
The increase to the monthly mortgage payment would be…drum roll please…$8.98.
For more information, you can read the entire press release from CMHC here.
Genworth announces the same insurance premium hikes on the very same day for the same effective date. (Click to read press release)
That`s 2/3 mortgage insurance companies.
How long before Canada Guaranty follows suit? It seems like a good time to try and steal some market share…