Connect

Find us on...

Dashboard

Login using...

New Search X

Raises Mortgage Premiums

Posted by Mark Sadiua on Tuesday, March 4th, 2014 at 3:39pm.

CMHC Raises Mortgage Premiums

People without a 20% down payment will be paying more to buy a house. Come May 1, the nation’s largest default insurer is bumping up its standard premiums by 0.10 to 0.40 percentage points. It's the first hike to homeowner insurance premiums since 1998.

Stated income applications will be charged even more.

For the average borrower with 5% down, that makes home buying $992 more expensive (plus interest if the premium is rolled into the mortgage, which it usually is).

The average CMHC insured mortgage at 95% loan-to-value was $248,000 in 2013. CMHC says this will raise that homeowner’s monthly payments by about $5. Not too agonizing.

The impact of this news is negligible unless you’re putting down less than 15%. At 85% LTV, for example, the extra premium is only $125 on a $250,000 25-year mortgage at 3.49%.

The two other private insurers haven’t announced whether they’ll match CMHC’s increase but it’s a likely bet they will. Rising targets for capital and return on equity and a potentially riskier housing market have warranted higher premiums for a while.

“Recognizing the last price increase was in the 1990’s and in light of increasing capital requirements over the same period of time, we view this as a prudent step being taken,” says Canada Guaranty CEO Andrew Charles.

CMHC does not anticipate a significant change in volumes leading up to the effective date (May 1), said Steven Mennill, Vice-President, Insurance Operations at CMHC. But if our past experience is a guide, consumers may front-run these changes based on the perceived cost increase.

Long term, CMHC is spot-on in saying “The premium increase is not expected to have a material impact on the housing market.” You’d have to be on the very edge of affording a home for this to affect you. As such, the company expects no impact on its homeowner insurance volumes. (In 2013 CMHC insured 192,000 residential homeowner units.)

Mennill also clarified that, “This is not a Department of Finance initiative. This is a CMHC business decision based on our annual review of premiums.”

On a side note, CMHC’s move could boost the volumes and earnings of lenders serving the uninsured market, like Equitable Bank and Home Trust. Their lender fees, which are basically self-insurance premiums, suddenly become more competitive vis-à-vis insured financing. This assumes that non-prime lenders don’t take this opportunity to lift their own fees.

Quick points:

  • Existing insured borrowers are unaffected by this news (unless they increase their insured mortgage later).
  • CMHC’s fee hikes apply to owner-occupied, self-employed and 1-to-4 unit rental property applications.
  • Self-employed borrowers without traditional income validation (i.e., stated income borrowers) will see an even bigger fee increase. On stated income applications of 85.01% to 90% LTV, homeowners will pay 70 basis points more than today. That’s $1,750 more on a $250,000 mortgage, plus interest if the premium is rolled into the mortgage.
  • Those submitting applications to CMHC before May 1 get the existing lower premium.
  • Note that “complete borrower and property details must be submitted to CMHC” before May 1 to qualify for the old premiums, including the property address.
  • CMHC says the borrower’s closing date will have no effect on the premiums charged to the client.
  • Going forward, CMHC will start announcing any changes to its premiums in the first quarter of each year.

Past CMHC insurance premium changes:

  • In 2006 CMHC added the homeowner premium surcharge for extended amortizations beyond 25 years.
  • In 2006 CMHC eliminated the application fee for all high-ratio homeowner applications.
  • In 2005 CMHC reduced its homeowner premiums in the 90.01% to 95% loan-to-value range by 15% and its multi-unit affordable housing premiums by 15%.
  • In 2003 CMHC reduced its homeowner premiums by 15% on all loan-to-value ranges.
  • In 2002 CMHC increased its mortgage loan insurance premiums for new multi-unit residential properties (5 units or more) (Source: CMHC)

In 2013, the average CMHC insured loan at 95% loan-to-value was $248,000.

95% Loan-to-Value

Loan Amount

$150,000

$250,000

$350,000

$450,000

Current Premium

$4,125

$6,875

$9,625

$12,375

New Premium

$4,725

$7,875

$11,025

$14,175

Additional Premium

$600

$1,000

$1,400

$1,800

Increase to Monthly Mortgage Payment

$3.00

$4.98

$6.99

$8.98

Based on a 5 year term @ 3.49% and a 25 year amortization

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

Frequently Asked Questions:

I recently signed a purchase and sale agreement on a home, the closing date is before May 1, 2014, and my mortgage will be CMHC-insured. Will the increase in premiums and surcharges affect me?

CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted to CMHC on or after May 1, 2014, regardless of the closing date of the home purchase.

In order to be eligible for the current (lower) mortgage loan insurance premiums and surcharges, your lender will need to submit a request for mortgage loan insurance to CMHC prior to May 1, 2014. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

I am planning to buy a home in the coming months and will require a CMHC-insured mortgage. Will the increase in mortgage loan insurance premiums and surcharges affect me?

If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

In order to be eligible for the current (lower) mortgage loan insurance premiums and surcharges, your lender will need to submit a complete request for mortgage loan insurance to CMHC prior to May 1, 2014. In addition to the application identifying you as the borrower, the application must also include the address of the property you will be purchasing.

I am planning to buy a home in the coming months and will require a CMHC-insured mortgage. If I do not know which property I will be purchasing before May 1, 2014, am I eligible for the current (lower) mortgage loan insurance premiums and surcharges?

Your lender will need to submit a complete mortgage loan insurance application to CMHC prior to May 1, 2014. Once your lender has obtained the necessary borrower and property information from you, they will be able to proceed with a CMHC mortgage loan insurance request.

If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

I am purchasing a home that is being built and will require a CMHC-insured mortgage. I will require progress advance draws which will occur on or after May 1, 2014. Will the increase in premiums and surcharges affect me?

As long as the complete request for mortgage loan insurance is received by CMHC prior to May 1, 2014, the application will be subject to the current (lower) mortgage loan insurance premiums even if progress draws are requested on or after May 1, 2014.

Refinance Loans

I am planning to refinance my home on or after May 1, 2014. Will the increase in premiums and surcharges affect me?

In order to be eligible for the current (lower) mortgage loan insurance premiums and surcharges, your lender will need to submit a request for mortgage loan insurance to CMHC prior to May 1, 2014. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

Residential Rental Loans

I am purchasing a residential rental property (1 – 4 units). Are premiums increasing for rental properties too?

CMHC is increasing mortgage loan insurance premiums and surcharges on all 1 – 4 unit (transactionally) insured loans. The revised (higher) mortgage loan insurance premium schedule takes effect May 1, 2014. In order to be eligible for the current (lower) mortgage loan insurance premiums and surcharges, your lender will need to submit a complete request for mortgage loan insurance to CMHC prior to May 1, 2014.

If the request for mortgage loan insurance is submitted to CMHC on or after May 1, 2014, the new (higher) mortgage loan insurance premiums and surcharges will apply.

CMHC Self-Employed

Effective May 1st, 2014, CMHC Self-Employed mortgage insurance premiums will be:

Self-Employed Borrowers without Third Party Validation of Income

Loan-to-Value Ratio

Total Loan Amount

Increase to Loan Amount

Up to and including 65%

0.90%

1.75%

Up to and including 75%

1.15%

3.00%

Up to and including 80%

1.90%

4.45%

Up to and including 85%

3.35%*

6.35% *

Up to and including 90%

5.45%*

8.05% *

Note: Premiums shown with “*” do not apply for Refinance transactions.

Existing premiums will remain in effect until May 1st, 2014. See here for existing premiums.

Revised Premium Surcharges

Extended Amortization Surcharge
For loans with a loan-to-value ratio of 80% or less, a 0.25% surcharge applies for every five years beyond the 25 year standard amortization period.

Blended Amortization Surcharge
For refinance loans and portability, a 0.60% surcharge applies where the amortization period of a CMHC-insured loan is blended, using a weighted average, with the amortization period of the Increase to Loan Amount. The blended amortization surcharge is applied to the Increase to Loan Amount.

Conversion Surcharge for Self-employed Borrowers Without Traditional Documentation to Support Income Verification
For conversion from Self-Employed with traditional 3rd party income validation to Self Employed without traditional 3rd party income validation, the premium is the lesser of: a) the Premium on Total Loan Amount or; b) the outstanding balance multiplied by a 1.75% premium plus the Premium on Increase to Loan Amount.

Leave a Comment

Re/Max, CREB Certified Condominium Specialist