Mortgage Default Insurance Premium Rising June 1, 2015

Mortgage Default Insurance Premium Rising June 1, 2015

In the market to purchase? Have less than 10% to put down? You will want to have that offer on the home accepted in the next couple weeks. Earlier this year, CMHC announced its premiums would be increasing by approximately 15% as of June 1.  This is the second time these premiums have been increased in the last 13 months. Canada’s other default insurance companies- Genworth and Canada Guaranty-are following suit with the premium increases.

Currently, if you purchase a home with 5% down, you are paying an insurance premium of 3.15% to do so. As of June 1, this figure will increase to 3.6%.

Currently, if you purchase a $400,000 home with 5% down, your default insurance premium is $11,970. As of June 1, the same scenario will cost you $13,680. The difference? $1710. Some people are pointing out that the increase isn’t really that much. And on this scenario, or a lower priced home, their statement is valid. And with this scenario, on a monthly basis- they may be right in saying so too. The new scenario will cost just $7.82 more each month at the current 5 year fixed rate of 2.69%. Like your mortgage payments, your default insurance premium is amortized over 25 years.

However, it’s the big picture people tend to forget. At the end of this 5 year mortgage term, for example, the new scenario has paid an additional $469.20 in mortgage payments, and has paid the mortgage down $1453.01 LESS than the current scenario. The actual difference looks more like $1922.

All mortgage commitments made prior to June 1, regardless of the closing date, will remain at the current default insurance premium. Happy house hunting!