CMHC To Raise Mortgage Loan Premiums!

Monday, March 03, 2014

Although annoying, it won’t have that large of an impact – on average about $5 per month as per CMHC, but this can be avoided if you have CMHC underwrite your mortgage prior to May 1, 2014.  Please note that underwriting does not mean closing, therefore you do not need to close on your home by May 1, 2014, you just need to have everything submitted to CMHC and have them underwrite it.  An important factor to consider for those currently in the market to purchase a home and especially those looking at new construction – it might be possible to be underwritten prior to May 1 and close 2 yrs later as long as nothing has changed on your credit bureau!  Be careful when applying for new credit during that time as that could reopen your CMHC file and you will be hit with the new rates!  If you are currently in the market or would like to further discuss purchasing or selling your home, please give me a call 416-841-5432 or an email me at .(JavaScript must be enabled to view this email address)  

 

Here is the information direct from the horse’s mouth:

Increase in CMHC Mortgage Loan Insurance Premiums — Key Facts

Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.

Effective May 1, 2014, CMHC is increasing its homeowner mortgage loan insurance premiums to reflect its increased capital targets. The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums.

For the average Canadian homebuyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact the housing market. 

Effective May 1st, 2014, CMHC Purchase (owner-occupied 1 – 4 unit properties) mortgage insurance premiums will be:

Loan-to-Value Ratio

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%

 

*CMHC mortgage loan insurance premium is calculated as a percentage of the loan based on the loan-to-value ratio. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and amortized over the life of the mortgage as part of regular mortgage payments.

**For loans with a loan-to-value ratio of 80% or less, the premium surcharge for every five years beyond the 25 year standard amortization period will increase from 0.20% to 0.25%.

 

CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after May 1, 2014. In order to be eligible for the current mortgage loan insurance premiums, lenders must submit a request for mortgage loan insurance to CMHC prior to May 1, 2014, regardless of the closing date of the home purchase. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.

Examples:

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.

85% Loan-to-Value

Loan Amount

$150,000

$250,000

$350,000

$450,000

Current Premium

$2,625

$4,375

$6,125

$7,875

New Premium

$2,700

$4,500

$6,300

$8,100

Additional Premium

$75

$125

$175

$225

Increase to Monthly Mortgage Payment

$0.37

$0.62

$0.87

$1.12

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.

 

CMHC Income Property

Effective May 1stCMHC Income Property mortgage insurance premiums will be:

Rental Loans (1 – 4 Units)

Loan-to-Value Ratio

Total Loan Amount

Increase to Loan Amount

Up to and including 65%

1.45%

3.15%

Up to and including 75%

2.00%

3.45%

Up to and including 80%

2.90%

4.30%

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.

- Courtesy of CMHC

 

 

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