Your Mortgage Solutions Group

Help you save time and money with your mortgage needs


Leave a comment

Mortgage insurance rates are raising

If you are planning to buy a property with less than 10% down payment expect to pay a bit more. As seen in Metro Vancouver New Home Guide.

CMHC and Genworth have announced that starting June 1st, all homebuyers that are putting less than ten per cent will be paying a higher mortgage default insurance. This is commonly referred to as simple “mortgage insurance”.

The mortgage default insurance increases the opportunities for homeownership with a low down payment as saving for a 20 per cent down payment can be difficult in today’s housing market. There are two types of mortgage options; conventional mortgages which are loans with a minimum 20 per cent down payment and high ratio mortgages are loans with less than 20 per cent down payment.

bankAs per the Bank Act, mortgage insurance is required on all high-ratio mortgages. The insurance protects the mortgage lender only against a loss caused by non-payment of the mortgage by the borrower and it is not a protection for the homeowner. However, mortgage insurance enables borrowers to purchase a home with a minimum down payment of five per cent.

Mortgage default insurance is provided by insurers such as Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada and Canada Guaranty. Each mortgage insurer has its own criteria for evaluating the borrower and the property and it decides whether or not a mortgage can be insured. The lender and not the borrower selects the mortgage insurer. It is possible that the mortgage application can be approved by the lender but might not be approved by the insurer.

The mortgage default insurance premium is a one-time charge and it is paid by the borrower to the lender. The premium can be paid in a single lump sum at the time of closing or it can be added to the mortgage amount and repaid over the amortization period (or the life of the mortgage). The cost of default insurance is calculated by multiplying the amount of the funds that are being borrowed by the default insurance premium, which typically varies between 0.5 per cent and 6.0 per cent. Premiums vary depending on the amortization period of the mortgage, the loan to value ratio, the size of the down payment and the product.

In May 2014, CMHC increased the mortgage default premium for all high-ratio mortgages regardless of the loan to value. However, this new increase will be the second increase for buyers that are putting less than 10 per cent down payment which is more than 56 per cent of CMHC insured borrowers. History has shown that once CMHC increased their premium, Genworth and Canada Guaranty follow suit.

The new rate for a loan to value up to 95 per cent will increase to 3.60 per cent from the current 3.15 per cent. This will mean an approximate increase of $450 of mortgage default insurance for every $100,000 of a mortgage. In addition, a non-traditional down payment (where you borrow the down payment with a loan, unsecured line of credit or a cash back program), the premium will increase to 3.85 per cent from 3.35 per cent. This increase will not impact any homeowners that are currently insured. This increase will have an impact for anyone that is buying a property.

What does this mean in dollar and cents?CMHC increase in premium

What does this mean to me?

  • If you are putting less than 10% down payment and your lender has submitted your application to the insurer before June 1st you will be paying the current premium rate. It doesn’t matter if your completion date (when your mortgage closes) is after June 1st.
  • If you have been pre-approved or pre-qualified and you don’t have an accepted offer and approved by the insurer you will have to pay the new premium.

If you are pre-approved, pre-qualified or are looking at purchasing a property, talk to a Mortgage Expert so they can explore your options based on your individual needs.

Advertisements


Leave a comment

What it means to you with the increase in mortgage premiums from CMHC?

On Friday, CMHC (Canadian Mortgage & Housing Corporation) announced that it will be increasing its mortgage insurance premiums for homeowners and 1-4 unit rental properties premium effective May 1, 2014.

Homebuyers is Canada are required by law to purchase mortgage insurance when they put less than 20% down payment on the purchase price of the home. The homeowner is required to pay for the insurance in case they default on their mortgage and it is a protection for the lender. The increase to the premium will be an average of about 15% more to insure mortgages. This premium is added to the mortgage amount and it is paid throughout the life of the mortgage (amortization period). The increase in premium will affect any purchases that occur on or after May 1, 2014.

There majority of the insurance is provided by CMHC and there are two private insurers to include Genworth Financial and Canada Guarantee. Genworth Financial followed suit by increasing its’ premiums on Friday and most likely Canada Guarantee will do the same.

Prior to the announcement, the premium ranged between 0.5% to 2.75%. As of May 1st, the premiums will range from 0.6% to 3.15%. The premiums charged depend on the amount of the down payment. With a 5% down payment the new premium will be 3.15% and 2.40% for a 10% down payment.

For example, prior to the announcement with a $400,000 home purchase and a 5% down payment the insurance premium would be $10,450. After May 1st, the premium would increase by $1,520 which would translate to $7.29 more per month with a 25 year amortization and a 5 year, fixed rate of 3.09%.

To read more about the CMHC announcement 

As always, we would be pleased to answer any questions you might have.


Leave a comment

There are stricter debt ratio standards on the way as CMHC tightens mortgage rules.

There are stricter debt ratio standards on the way as CMHC tightens mortgage rules.

We are committed to keep you informed so you can take advantage of current guidelines. If you are looking at purchasing, refinancing or investing before the new guidelines come into effect at the end of this year, give us a call so we can find the best options for you.

When CMHC tightened mortgage rules last year, among the changes were stricter debt ratios and income confirmations. For typical borrowers, these are key factors in determining whether or not you’ll get a mortgage. If you’re close to the line on debt and income, last year’s changes have made it more difficult for you to qualify. And unfortunately, things are about to get even more difficult!

CMHC has issued new guidelines for calculating debt ratios and confirming income documents. While most lenders have already been following these rules, CMHC is now closing the “loopholes” that allowed some lenders to offer easier approval for borrowers with tight debt ratios. Here are some of the rules that have been clarified:

  • If you have variable income from things like bonuses, tips and investment income, lenders must use an amount not exceeding the average income of the past two years.
  • If you own other non-owner-occupied rental properties, the principal, interest, property taxes and heat on those properties must be deducted from gross rent revenue or included in “other debt obligations” when Total Debt Service ratio is calculated.
  • For unsecured credit lines and credit cards, no less than 3% of the outstanding balance must be included in monthly debt payments.
  • For secured lines of credit, lenders must factor in “the equivalent” of a payment that’s based on “the outstanding balance amortized over 25 years.”
  • For heating costs, lenders must obtain the actual heating cost records of a property or use a set heating cost formula. This can double or triple the cost factored into debt ratios on larger properties, and reduce it on smaller ones.

Since the new rules take effect on December 31, 2013, it’s important to talk to contact us today  to find the best options with the current guidelines. We still have access to a select group of lenders who may be able to provide the mortgage approval you need. For more information, call us today at 778.893.0525!