CMHC, Genworth double charge…. did you pay twice and not know it?

We’ve all heard the saying, ‘necessary evil’….. You know… something that we need or must have but don’t necessary like….  kinda like that cough syrup that doesn’t taste so good but you know you need it to feel better.

Default mortgage insurance is a ‘necessary evil’…. without it, we wouldn’t be able to buy a home with less than a 20% down payment with low interest rates.  But what if you bought a house, paid the CMHC or Genworth insurance….and a few years later you bought a bigger home or you refinanced your house for some home renos or debt consolidation?  Do you have to pay CMHC or Genworth insurance again?  If so, how much will this cost?

A Financial Planner’s story gives new meaning to ‘necessary evil’

One of my reader’s, a Financial Planner, shared a recent experience…. and I must admit, this isn’t the first time I have seen or heard about this happening…His client had a CMHC insured mortgage and then later wanted to refinance the mortgage for some home renos… It appears his client was charged FULL CMHC insurance premiums on the entire mortgage, AGAIN!!   This is not right…. and we call this DOUBLE CHARGING.

A CMHC or Genworth or Canada Guranty insured mortgage can be refinanced with REDUCED insurance premiums charged ONLY on the new funds. It is up to the submitting Lender or Banker to inform the Insurer that the current mortgage is already insured.    Unfortunately, I have seen and heard of other cases where the Banker did not have the experience or knowledge or cared to take the time to inquire if the current mortgage was already insured…  and then went on to simply process the application as a NEW CMHC or Genworth insured loan (Canada Guaranty is fairly new and I have not seen any cases involving them yet)…  And the borrower gets stuck paying the FULL COST again….

How much would a mistake like this cost?

Well, here’s an example and some formulas to follow…

Let’s assume we have someone who bought a house for $350,000 in January 2008 and they required a 95% loan to value mortgage, or $332,500.  They took a 35 year amortization. They would have paid mortgage insurance of 3.15% or $10,473.75 giving them an original starting mortgage balance of $342,973.75 (the insurance gets added to the mortgage and is not payable up front).

Fast forward to today…. their home is worth $402,000…their mortgage balance is approximately $331,149 with a 32 year amortization remaining…. they want to refinance up to 90% of the value of the home…  that would give them $40,200 in new funds and their mortgage would be $361,800 (before insurance)…  The borrower will be charged additional insurance on the new funds only at the rate of 4.65% or $1,869.30.….the new mortgage is $363,669.30.

But what if your Banker didn’t submit your application to CMHC or Genworth as a previously insured mortgage?  What if your Banker sends your CMHC insured mortgage to Genworth or your Genworth insured mortgage to CMHC?   What if you weren’t given credit for the previous insurance you had paid?   Think this can’t happen?  Guess again…it’s happened before and it sounds like it’s happening again.

And now the results of the Banker’s mistake

That same mortgage will cost you $6,813.90 in extra mortgage insurance.  That’s because your banker submitted your application to the insurer as an entirely new mortgage application.   You will be paying new insurance on the entire mortgage….  Here’s the formula:  $361,800 x 2.40% or $8,683.20… your new mortgage is $370,483.20….a difference of $6,813.90…. that’s right….an overcharge of $6,813.90…. and remember, this gets added to your mortgage so you are paying interest on this for 32 years!!… The additional interest will cost you another $4,915 in interest… that’s a grand total of $11,728.90 of unnecessary expense… this isn’t necessary, it’s just evil.

We can only hope that this problem isn’t widespread.   If you’ve experienced something similar then I suggest speaking with your Mortgage Broker to get a review… I would certainly be interested in hearing about it.

18 Responses to “CMHC, Genworth double charge…. did you pay twice and not know it?”

  1. Brian Says:

    Another eye opening quality post! To anyone refinancing this will save them a lot of money.

  2. Anonymous Says:

    Totally agree! Great information for people looking to refinance….

  3. Andrea Says:

    Thank you – thank you for the great post!!

  4. Bill Says:

    I ported an existing mortgage that I paid full CMHC fees on less than two years ago, I was charged 5600 by the bank for dropping my mortgage by 156000.00 which I can understand, but then was charged an additional 7300.00 by CMHC again, on a mortgage that I already paid full fees on. This is now, and I am raising as much hell as possible! If anyone can help me ,please let me know!

  5. Angie Says:

    This just happened to me, I didn’t realize it until I signed papers with the Lawyer and I was short on the amount because of the bank not covering all the expenses. I ported my mortgage which is 1 year 4 months old to buy another home. I had to pay CMHC fees for that mortgage. With the new mortgage being higher the bank charged me full fees again on the entire amount. I’ve got an email to my bank lender inquiring why this would happen. Hope there is something they can do about it, wish me luck.

    • Steve Garganis Says:

      Angie,
      this happens more often than we think… of course, there could be some legitimate reasons for having to reapply for new cmhc insurance.. if your debt servicing ratios were very tight then maybe there was no other choice… but this should have all been explained to you…

      here’s some more info for you… when you arranged the original mortgage, what was the loan to value? In other words, what percentage of the purchase price did you put as a down payment… 5%, 10%, 15%? Now tell me what the down payment was on this new mortgage… 5%, 10%, 15%…? If the down payment was a smaller percentage on the new mortgage, then you would not be eligible to port the cmhc insurance… however, a simple solution would be to borrow part of the down payment through a small loan, unsecured line of credit or maybe even a credit card… the savings on your cmhc insurance premiums could be $10k or more.. so paying a higher interest rate on a small loan is certainly worth it…

      Let me know the answers to these questions.. I’m very interested to know how and why your bank did this…

      Steve

  6. Angie Says:

    My bank said that because I was with CMHC for the first mortgage and went to Genworth for the second portion that I had to pay the full amount again. I paid 5% down for both mortgages and was charged 2.75% fees on the entire amount for both mortgages.

    • Steve Garganis Says:

      Angie,

      why did they go to genworth the second time around? why couldn’t they have gone to cmhc? I think you need to know this… and I’m anxious to hear the reason…

  7. Kris Says:

    Hi Steve,

    Was hoping to pick your brain…

    We bought our first house in 2009 and paid 5 pct down, thus paying the cmhc mortgage default insurance (25 yrs, accelerated biweekly payment structure). Fast forward to now. We have about 19 yrs left on our mortgage, but are about to purchased a new place with a restructured 25 year mortgage. Does it make sense that because we only have 13 pct equity to put down, we have to pay the entire cmhc insurance again on the sale price of the new place? It seems unreasonable that we shouldnt be able to port the insurance and only pay the incremental difference, doesn’t it?

    Thanks

  8. Raul B. Cano Says:

    Hi Steve,

    I just read this post and realized I also
    experienced this when I refinanced my mortgaged four years ago. What can you suggest that I should do to
    correct this? or is there a chance that this can be corrected and readjust my mortgage?
    Thanks.

    Raul

    • Steve Garganis Says:

      Hi Raul, You should definitely go back to your Lender and the insurer (CMHC or Genworth) and request a refund of premiums.. you will need to get your Lender’s help.. They should also refund you back the interest paid on this.. How long ago was the original insurance taken? When did you refinance or port your mortgage? Who was the Lender and insurer?

      • Raul Says:

        The original loan was in 2006 and it was refinanced in 2009. The lender used to be Maple Trust but they were acquired by Scotia and the insurer was genworth.

      • Raul Says:

        Just went to our lender and said they will look into the matter…thanks Steve.

      • Steve Garganis Says:

        Hi Raul,

        It’s nice they are looking into it.. but if they did make a mistake, you should be refunded the premium, interest costs and probably something for your trouble.. If you want me to review the numbers more closely, send me an email with more detailed numbers and dates… or give me a call… that might be easier..

        Steve 416 224 0114 or steve@mortgagenow.ca

  9. Lana Says:

    Hi Steve,
    I bought a house with 5% down with my spouse, on Dec 1,2014.
    I sold the house 10 months later, and at the same time bought a condo with 10% down on my own.
    Each time, I had to pay the full CHMC premium. I contacted the lender to see if they can reduce it by the amount that I had already paid to CHMC with the house, but they sent it to their supervisor to review….and later came back saying I have to be charged full premium again.
    Have you had such a scenario before?
    Thank you in advance,
    Lana

    • Steve Garganis Says:

      Hi Lana,

      You are not alone.. this has happened, and is still happening, to a number of Canadians. We really don’t know how many.. but it could be well in the 10’s of thousands.

      Most will have no idea they are double or triple paying. I just finished with one client that had paid 3 times.. He was in our Canadian military and they get asked to move every 3 years. And that’s just what happened to this particular client.

      The banks didn’t consider porting his CMHC insurance. Would have saved him over $23,000. Ridiculous!! And to do it to someone that is serving our country is even more insulting.

      Contact me and I’ll do some investigating for you. Not sure I understand why you would have to pay full premium again..

      Thank you,

      Steve Garganis
      steve@mortgagenow.ca


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