By Cindy Janisch
What is the Insurance fee that is on your mortgage? Who is CMHC, Genworth and Canadian Guarantee?
When I refer to Mortgage Loan Insurance, I am not referring to Mortgage Life Insurance that covers your portion of the mortgage should you die. Mortgage Insurance is a fee set out by Canada’s various Insurers, they are the Canadian Mortgage and Housing Corporation (CMHC) Genworth and Canadian Guarantee.
These companies charge an insurance premium on your mortgage if you have less than 20% down payment or equity in your home. Recently in the news there was a small bit of information on the new premiums that will begin on March 17, 2017. This insurance protects the mortgage lender (Financial Institution) against loss if a borrower defaults on the mortgage. As well as, assisting qualified borrowers to access homeownership.
Beginning on March 17, 2017 the new premiums will be as follows:
|Loan to Value Ratio||Premium|
|Up to and including 80%||2.40%|
|Up to and including 85%||2.80%|
|Up to and including 90%||3.10%|
|Up to and including 95%||4.00%|
|90%-95% Non Traditional down payment||4.50%|
These premiums are added to the cost of your mortgage and amortized over the 25 years that you will need to payout the debt. For example:
Home Buyer with 5% down payment on a home for sale at $350,000.
The loan will look like this:
|Less Down payment 5%||-17,500|
|Total Borrowed Loan||$345,800|
This will be the third increase to Mortgage Loan Insurance in over three years. You must understand that Mortgage Lenders outside of the traditional Big Five Banks in Canada are governed by OSFI (Office of the Superintendent of Finance) and their role is to supervise institutions to determine whether they are in sound financial condition.
Sound Financial Condition?
OSFI has requested that as of January 1, 2017 the Mortgage Lenders must hold more capital on their books just in case the mortgages that they have issued begin to default. Because of this change the lenders are now having to re adjust their product line, interest rates and underwriting guidelines.
Higher premiums have already limited competition in the low ratio market (Conventional Mortgage) with some rates up to .25% higher compared to a few months ago.
This is a key factor for our Mortgage Lenders who set mortgage interest rates based on the Bond Market, set policies and under write mortgage applications to approve or decline home buyers. Over the past five years the rule changes set out by the Government of Canada and OSFI have made it increasingly difficult to qualify for a mortgage. This is placing more pressure on First Time Home Buyers to seek additional support from Family to co-sign their mortgage or provide some form of gift for the down payment.
There are however, many different lenders, rates, programs and underwriting policies that are ever changing. It is imperative that you speak with a Mortgage Associate, Cindy Janisch, who has the knowledge, service and trust required to get your Mortgage Application approved on the best terms and conditions.
©2021 Cindy Janisch, Mortgage Associate