The federal housing agency is increasing the amount of mortgage insurance premiums, but it does not expect the changes to affect homebuyers much. The agency estimates the change will add around $5 to the monthly payment of the average CMHC-insured loan. The average CMHC-insured loan is about $245,000, which means the increase is only modest.
CMHC report forecasts aggressive and moderate rate-hike paths
The CMHC report released Thursday shows that the Canadian mortgage market is poised for a decline, ranging between nine and 18 percent. The agency is making some changes to its mortgage insurance rules to prevent the price declines from becoming too extreme, and has warned that rising rates may drive some borrowers out of the market. The report also notes that the COVID-19 pandemic is having a negative impact on all sectors of the Canadian economy, including the housing market. Moreover, the CMHC says, rising costs of borrowing will lower the demand for housing.
The Bank of Canada is also preparing for another hike in its benchmark rate, and the odds of a 100-basis-point hike by the Federal Reserve in mid-June are increasing. In addition, the report indicates that the relentless strength of inflation and the need for a policy response to tackle it are raising the risk of a hard landing. The BMO report also indicated that the Fed is unlikely to switch its focus to avoid a recession.
The report forecasts that the interest rates will rise in the future, but the market will remain tight and buyers will be competing for homes. A surge in interest rates could drag down home values by five per cent by 2023, but it would not cause a collapse. Meanwhile, a moderate rate-hike path would see policy rates rise to 2.5 per cent. This path would result in a three-per-cent drop in national home values and a 29-per-cent decline in home sales.
A recent report by the Canadian Mortgage and Housing Corporation (CMHC) indicates that housing starts in the coming years will moderate from their recent highs, but remain above historical averages. However, as the Bank of Canada continues to raise its key interest rate target to contain inflation, mortgage rates are also expected to rise. Last week, the Bank of Canada increased its policy interest rate by half a percentage point to 1.0 per cent, warning that more hikes may be coming.
The report also shows a marked slowdown in consumer demand for consumer debt. Homeowner refinancing activity fell by 40% in the second quarter and 25 percent in September, year-over-year. Meanwhile, new purchase activity is also slowing.
The Fed’s policymakers also confirmed that they will begin reducing their balance sheet by September 2022. This will include a net reduction of USD35 billion worth of mortgage-backed securities each month. While the Fed’s plan outlines the reduction of their balance sheet, it remains unclear exactly what that will entail for mortgage-insurance.
As the economy recovers from the recent recession, the US housing market has begun to recover. In fact, the US housing market is now said to be bigger than the US stock market. The Federal Reserve recently raised the Fed funds rate for the fourth time, hoping to reign in inflation. The next hike will be 25 percentage points, in March, and 75 basis points in July. Higher rates will depress borrowers’ buying power, which has risen in recent years.
CMHC premium increases by $2,730
The Canadian Mortgage and Housing Corporation has announced that mortgage loan insurance premiums will rise by up to 15% on May 1. This change will affect all loan-to-value ranges. However, the increase will not impact borrowers who already have mortgages insured by the corporation. This increase will result in an additional $5 monthly mortgage payment for the average homebuyer.
Premiums are a major factor when determining CMHC mortgage insurance rates. This year’s increase is based on the introduction of new OSFI capital requirements for mortgage insurers. These new requirements are meant to provide a buffer against losses and help keep the financial system stable for years to come. According to CMHC data, in 2013/2014, the average insured loan was $245,000, with a down payment of eight per cent. A qualifying homebuyer has a debt-to-income ratio of 32 per cent or less.
CMHC premium increases by $2,730 on loans with a down payment of less than 10 per cent
The CMHC mortgage insurance program is a federal government program that allows lenders to work with borrowers who do not have enough money for a down payment. It is available to all home buyers and has no geographical restrictions. It is a long-established program that lenders understand the benefits of and have used for decades.
The CMHC says the increase is minor and will not affect new homebuyers in any significant way. The changes are part of a larger regulatory overhaul that requires the agency to hold more capital to offset the risks associated with the red-hot real estate market. However, the increase will add about $5 per month to the mortgage payments of the average new homeowner.
A CMHC insurance premium can be paid in cash at closing or rolled into the mortgage payments. In addition to the CMHC insurance premium, there is also the provincial sales tax for the property you are insuring. However, this tax is not added to the principle amount of the mortgage.
The mortgage insurance premium is a necessary financial cushion for lenders. However, it can add up to thousands of dollars to the cost of purchasing a home. However, there are ways to reduce the cost of CMHC insurance.
There are some lenders who offer mortgage default insurance that protect lenders against loss if the borrower does not make payments on time. However, these policies do not apply to all mortgages. For example, you can still get insured for a mortgage with less than 10 per cent. However, you will not be able to access the insured mortgage if you do not have the money to pay the insurance premium.
CMHC insurance premiums are based on the number of years you have had your previous insured mortgage. If you have had a previous insured mortgage, the CMHC premium for a new mortgage in Ottawa is 50% the cost of a similar mortgage in Toronto.
The CMHC premium is a percentage of the home’s value. So, if you want a $300,000 home, you can expect to pay a higher CMHC premium than someone who has a $150,000 home. For the exact number of fees, consult with a mortgage broker.
Mortgage insurance is an important part of financing a home. If you have less than twenty per cent to put down, you may want to consider paying a larger down payment. The higher the down payment, the lower the CMHC premium will be. However, if your down payment is too low, you may have to pay higher interest rates. This can add up over time and can prevent you from purchasing a home.
Mortgage loan insurance is a good way for first time homebuyers to get into the housing market without putting down a large amount of money. This helps first-time home buyers get out of renting sooner and start making monthly payments.
Among many other things, David A. Grantham is a contributing author to UmassExtension West Vancouver Blo. He is a renowned expert on real estate in BC.
Born in North Vancouver, Louisiana, Dr. Grantham grew up in Lower Lonsdale. He then went on to complete his business degree at the University British Columbia. As of this writing, Grantham has completed over 100 projects, including the development of a high rise building in Vancouver.
He is a husband, father, son, brother, and friend. He was a dedicated outdoorsman and enjoyed sports such as hunting, fishing, scuba diving, and snow skiing. His wife, Alison Grantham, and their two daughters survived him. He is survived by his wife Alison Martin Grantham and two daughters.