Friday, March 9, 2018 / by Ruth Ballantyne
Your home must be insured with CMHC or another private insurer if you are putting less than 20 % down. This cost is usually added to the mortgage and forms part of the payment you make typically over the next 25 years. This Insurance typically exists to secure the banks investment for those who have less than what the goverment and the bank feel is a strong enough downpayment. Without this insurance it is unlikely that the bank would lend to a person with 5 % or nothing down as they have no skin in the game and if the market decreases at all the bank would be in a position as many were in the United States in the past 5 years where the mortgage was higher that the value of the home. In the industry this is know as being under water or upside down. If the buyer defaults CMHC pays the difference to the bank. CMHC claims the reason for the increase is so they have more cash should more buyers default..
Currently if you are putting 5% down on your home that costs $300,000 mortgage insurance of 2.75 % or $8250 would be added to your balance. The new rules would bring that amount to $9410 or 3.15% on the same $300,000. Your total Mortgage would be $309,410 as opposed to $308,250. So your total cost, would be $1160.
As an increase in monthly payments though, this will amount to about $6 per month. I am quite sure that this small increase will not have any impact on the market. Interest rates will have a much larger effect.
Today on the radio an Economist Specializing in Real Estate said they were budgeting for interest rates to rise about 1 % by the end of 2015.
So all in all this will not have a huge effect on the market, Nor is there a reason to rush out and buy before the deadline. What is more important is that you have assessed your situation, know what you want and can afford and take the time to enjoy the home buying process. Getting what you want, at a price you can afford is the ultimate goal.
Standard Premium (Current)
Standard Premium (Effective May 1st, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% – Non-Traditional Down Payment 2.90% 3.35%
Chart From CMHC.