CMHC mortgage insurance rates increasing but still cheaper than 10 yrs ago.

Canada Mortgage and Housing Corporation (CMHC) announced they will be increasing the cost of insurance premiums effective May 1st.   The premium increase is minimal and isn’t expected to slow the mortgage volumes (see below for cost changes).  The move isn’t that puzzling given that CMHC’s most recent financial statements from 2013 show their volumes are down due to the Federal govt mortgage rule changes… but interestingly, profits were up 11% for the first nine months of 2013.

CMHC made $1.27billion as of September 30th 2013.   Not bad for a crown corporation that was created to encourage home ownership in Canada. CMHC puts a lot of money in the government coffers.   Arrears are lower at 0.33%.. that’s considered extremely low.    Some would say this is just a cash grab.  But I think it’s just being proactive as taking action before the expected volumes decrease.

CMHC PREMIUMS ARE STILL CHEAPER THAN THEY WERE 10 YEAR AGO

But here’s the bright side.   Did you know that CMHC’s insurance premiums were actually higher 10 years ago than they are today?  Anyone remember the $235 application fee that borrowers had to pay?  It got reduced to $165 and then eventually eliminated in the mid 2000’s due to competition from Genworth Financial.

• Around 11 years ago, CMHC premiums used to be 3.75% for mortgage loans between 90% and 95% loan to value (ltv).    They reduced the premiums a few times to its current level of 2.75%.   In May, the new premium will be 3.15%.  A $300,000 will cost you $1200 more.
• For loans between 85% and 90% ltv, the insurance used to be 2.50%.  It’s currently at 2.00% and in May, it will go up to 2.40%.   A $300,000 mortgage will cost you $1200 more.
• By the way, that’s gonna cost you around $5/mth more.  Not a big deal.
• Loans below 85% ltv are rare.  Most brokers can help the buyer find a way to get an extra 5% to bring the mortgage to 80% ltv and avoid CMHC insurance altogether.

TIME TO HURRY AND BUY?

Not really.  Not for this reason.  But it does look like the housing market is heating up.  There are fewer properties for sale.   Less inventory and low mortgage rates means higher house prices at some point.   And as I reported last week, houses are selling for way above asking price in the Greater Toronto Area.  If you are considering buying, I would suggest you start looking now.   With Spring around the corner (March 21 is Spring?), the housing market should be more active.

Your best interest is my only interest.    Like this article?  Share with a friend.   I reply to all questions and I welcome your comments.

Steve Garganis 416 224 0114 steve@mortgagenow.ca