[caption id="attachment_80669" align="alignleft" width="279"] CMHC Raising Rates to Issue New Mortgage Insurance
[/caption]The state-owned enterprise or Crown Enterprise known as the Canada Mortgage and Housing Corporation (CMHC) has announced that it will be raising the rates it charges for mortgage insurance premiums, but the rate change will only affect new mortgages being issued. The rates will now be graduated and will be inversely proportional to the percentage of down payment the prospective home owner is willing to make for the down payment. Like the CHMC's US counterpart, the government sponsored enterprise called the Federal Housing Authority (FHA), mortgage insurance is required whenever the amount of the down payment is less than 20% of the home's purchase price.
The purpose of mortgage insurance is to safeguard the principal the lender is issuing to the buyer in the event the homeowner defaults on the repayment of the loan. Buyers making a 10% down-payment will experience a 20% increase in their mortgage insurance premium from 2% to 2.4%. Buyers able to put down 15% of the home's purchase price will see a modest premium increase to 1.8% from 1.75%. Put another way, a buyer purchasing a home for $100,000 and putting 10% down will pay $2,160 for their mortgage insurance premium. The same buyer making a 15% down payment would only pay $1,530.
Borrowers are allowed the option of financing the mortgage insurance premium over the period of time that it would take to pay down a sufficient amount of the principal to have an 80-20 loan-to-value. While the rate changes will increase the cost of the mortgage insurance by several thousand dollars on higher priced homes purchased with smaller down payments, it will amount to only a nominal $5/mos. more on the average monthly mortgage for those financing their mortgage insurance premiums into the loan. The rate changes will take effect on May 1, 2014.
CMHC Raising Rates to Issue New Mortgage Insurance