A Change Coming Our Way- CMHC Mortgage Insurance Change
Written by: Condo Chicks
Posted on: March 14, 2017
“With an overheated Housing Market, homes in Toronto and the GTA continue to be at a premium. Increased demand and limited supply raises more competition and therefore also driving up home prices- which in the end, making it more and more challenging to be a Buyer in todays fierce Market.
In the last year alone, in an attempt to slow the inflated housing market, the Government introduced a number of measures. These included higher qualifying interest rates, a demand for higher down payments and a decrease to amortization periods. The newest change however, is to come into effect March 17th, 2017 when, for the third time in the past four years, Canada Mortgage and Housing Corporation (CMHC) will once again be increasing Mortgage Insurance premiums.
What is Mortgage Insurance and why is it important to the average home buyer? Well, if you’re not yet a Home Owner, the understanding of Mortgage Insurance may be foreign to you. So, what is it? Simply put, Mortgage Insurance is required by Lenders when a Home Buyer’s down payment is less than 20% of its full purchase price. This Insurance is calculated as a percentage of the total purchase cost/the value that you borrow. Thus said, the higher the percentage of the total cost of your home or value that you borrow, the higher the percentage you will be having to pay in Insurance premiums.
Why do we need it? Simply put, Mortgage Insurance lowers borrowing risk to the Lender, helping Home Buyers qualify for a loan that they may not otherwise be able to get. With seeing the GTA’s sky high prices, that 20% in order to opt out of the needed Insurance ends up being higher than many are able to achieve, making Mortgage Insurance even more so of a necessity in many circumstances for today’s Buyers.
The big question now is, what does this expected change mean to Home Buyers? This coming CMHC change will add about $5 to a monthly mortgage payment for a Home Buyer with an average CMHC-insured loan of approximately $245,000. In Toronto, however, where the average home price has reached well above the $700,000 mark, an average Home Buyer can expect to pay at least $18 more a month for their CMHC Insurance premium, granted if they have a $550,000 mortgage with a 10% down payment.
Although these increases may seem “minor”, especially when compared to other government initiatives put in place in attempt to “cool down” the Market, these changes undoubtedly make an impact on Home Buyers – particularly those who are looking to purchase their first time.
These actions are in effort to even out the playing field in Toronto’s housing market, and are suggested to increased difficulty when purchasing a home, while therefore decreasing the high demand and attempting to slow down the appreciation of homes. One thing is for certain – living in such a great City such as ours sure does have its cost!”