CMHC to Increase Mortgage Insurance Premiums

CMHC is increasing its homeowner mortgage loan insurance premiums effective March 17, 2017. For the average CMHC-insured homebuyer, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI’s new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.

During the first nine months of 2016:

  • The average CMHC-insured loan was approximately $245,000.
  • The average down payment was approximately 8%.
  • The average gross debt service ratio (GDS) was 25.6%. To qualify for CMHC insurance, a homebuyer’s GDS should not exceed 32% of their total monthly household income.
Down payment between 5% and 9.99%
Loan Amount $150,000 $250,000 $350,000 $450,000 $550,000 $850,000
Increase to Monthly Mortgage Payment $2.82 $4.70 $6.59 $8.47 $10.35 $15.98

Based on a 5 year term @ 2.94% and a 25 year amortization 

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

Premiums are calculated based on the loan-to-value ratio of the mortgage being insured. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and repaid over the life of the mortgage as part of regular mortgage payments. Additional details and scenarios are included in the backgrounder below.

CMHC regularly reviews its premiums and sets them at a level to cover related claims and expenses while also reflecting the regulatory capital requirements.

CMHC is Canada’s most experienced mortgage loan insurer. Our mortgage loan insurance enables Canadians to buy a home with a minimum down payment starting at 5%. As a Crown corporation, CMHC is the only mortgage insurer whose proceeds benefit all Canadians.

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need and offers objective housing research and information to Canadian governments, consumers and the housing industry.

For additional highlights please see the attached backgrounder.

B.C. budget: New homes get transfer-tax cut

A B.C. budget move designed to open up the Vancouver housing market could stimulate homebuilding in Victoria and improve affordability for buyers.

The province announced changes Tuesday to the property transfer tax, including an exemption from the tax when buying new homes worth up to $750,000.

That change was designed to stimulate the supply side of the housing equation and establish more options, especially in places like Vancouver, which, according to budget documents, has seen single-family homes increase in price between 45 per cent and 70 per cent over the last five years.

The current property transfer tax is set at one per cent on the first $200,000 and two per cent on the remaining price. Buyers of older homes will continue to pay the property purchase tax at current rates.

In Victoria, the effect of the change is likely to be less pronounced, though it should mean an increase in homebuilding activity and easier access to new homes, said Casey Edge, executive director of the Victoria Residential Builders Association.

“This will be a significant improvement in housing affordability,” said Edge. “B.C. has the highest average price in Canada for a home by more than $200,000 so housing affordability is a critical issue. The property transfer tax has been a significant hurdle so a reduction is an improvement.”

A survey of member builders last year pegged the cost of a small basic new home at $562,000 on the West Shore.

Victoria Real Estate Board president Wendy Moreton said the new rules appeared to be aimed at the Vancouver market.

“This will help some buyers but it would have been nice to see some adjustment to the property transfer tax on existing home sales, that’s what we were hoping to see,” she said. “But we can hope that now they’ve made a change, they could make future changes.”

Finance Minister Mike de Jong told reporters he hoped the changes to the property transfer tax will stimulate building and provide more opportunity for first-time buyers to get into the housing market.

A purchaser of a new home worth $400,000 would save $6,000 in property transfer tax, while the exemption means a savings of $13,000 in tax on a new home or condo priced at $750,000.

To get the full exemption, a purchaser must live in the home as a principal residence for one year.

B.C. Real Estate Association chief economist Cameron Muir said the changes were positive, but cautioned it could take some time to see the effect. “It will likely stimulate some new construction, but, unfortunately, for places like Vancouver, major condo projects take many years from inception to completion so the impact of that supply will not be immediate.”

Gord Stewart, senior vice-president of the Independent Contractors and Businesses Association, suggested buyers, scared off by an over-heated market, might start to look at jumping in. “We think [government] has done exactly the right thing. It’s a market-based approach and reducing the cost of a new house is going to encourage more people to get into the market and it will bring some supply on.”

The measure means the province could lose an estimated $75 million in tax revenue. That money is expected to be offset with the addition of a third tier to the property transfer tax — the rate of tax applied to sales of properties valued at more than $2 million will increase to three per cent from the current two per cent.

The government also announced it will collect information to determine who is buying property in B.C. and if foreign buyers are having an inflationary effect. Starting this year, people who buy property will have to identify themselves as Canadian citizens or permanent residents, and if they are not they will need to divulge their citizenship and country of residence. The government stopped collecting that data in 1998.

De Jong would not get into details of what the government might do if the information shows high levels of foreign ownership. It is about getting more information to help explain the sharp rise in prices in some areas of the province, he said.

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Mortgage rules requiring 10% down on Canadian homes over $500K kick in today

Today is the first day you’ll need to put at least 10 per cent down on a home selling for more than $500,000 in Canada.

The new mortgage rules, announced last December by Finance Minister Bill Morneau, are intended to keep housing prices affordable for anyone wishing to enter some of Canada’s hottest real estate markets, such as Toronto and Vancouver.

Buyers can still put down five per cent for homes $500,000 and under. For example, if you want to buy a $750,000 home, you’ll need to have a minimum down payment of $50,000, which is what you get when you add five per cent of $500,000 and 10 per cent of the remaining $250,000.

Homes that cost more than $1 million still require a 20 per cent down payment.

Phil Soper, president and CEO of Royal LePage, said the new rules target the rapid pace of price growth in red-hot markets without hurting those that are lagging.

“The problem with monetary policy is that it impacts the struggling Calgary market or the just fine Winnipeg market and the overheated Vancouver market in equal amounts,” Soper said.

“If you lower interest rates, you lower interest rates for all. And that’s not what the country needed. This change … is the first attempt to recognize the fact that some parts of the country are in need of a mild tap on the break, while other parts of the country really need to continue to receive stimulus.”

New rules ‘drove traffic’

Toronto real estate agent Sonya Côté said first-time homebuyers were feeling the pressure to put their five per cent down on homes while they still could.

“Coming up with $3,000 or $5,000 or $7,000 more for a down payment to get in there for the first time is a lot of money for first-time buyers,” she said.

The rules change meant Côté was able to sell a row house that hasn’t been renovated, and with no parking, in a week.

“That drove traffic through this place like a circus,” she said of the new regulations. “We had 103 showings, 13 offers and it went for $149,000 over asking.”

The agent predicted real estate traffic will slow now with first-time buyers facing stricter regulations.

More eyes on condos?

Toronto broker Michael Elmenhoff told CBC News he supports the change because of the way home prices have been skyrocketing lately.

“I think it’s a good idea. I’m concerned with the value of properties these days,” he said, adding buyers may have to rethink their objectives moving forward.

“I think we’re going to see more pressure on the lower price condos as a result of that,” Elmenhoff noted.

Soper said real estate markets in Ontario, B.C. and Quebec have been “boisterous” in the first five weeks of the year — but added it’s unlikely that the new mortgage rules are responsible.

“I think it has much more to do with clean sidewalks from a mild winter and low mortgage rates than it does with impending changes that tweak mortgage insurance regulations,” Soper said.

“It’s just not a big enough change to have materially impacted home sales volumes in the country,” he acknowledged.

“We recognize that, specifically in the Toronto and Vancouver markets, we have seen house prices that have been elevated,” Finance Minister Bill Morneau said last December.

“We’re not talking about bubbles here, we are talking about ensuring that Canadians take the right approach to investing in a home,” the minister noted.

“We want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home.”

Analysts predict price gains

(Reuters) – Canadian home prices are set to rise a little over 5 percent this year and 2 percent in 2016 despite a slowdown in activity as the economy weakens, a Reuters poll found.

Canada’s economy shrank in the first three months of the year and quite possibly between April-June as well owing in part to slumping oil prices. House prices have defied this weakness so far and have kept climbing.

The Reuters survey of over 20 analysts predicted home prices would rise 5.2 percent this year, up sharply from a forecast of 3.4 percent in June’s survey.
The latest expectations for 2016 and 2017 have also been revised upwards, to 2.0 and 2.3 percent from 1.3 and 1.7 percent respectively. Canada’s TeranetNational Bank House Price Index was up 1.2 percent in July.

Calling the Canadian housing market “bullet-proof”, Mark Hopkins, senior economist at Moody’s Analytics said: “It seems to not only be defying the odds in terms of surviving the large downturn in the global economy, but even now with gross domestic product contracting, it seems as though existing home prices have accelerated which is a bit strange and counterintuitive.”

A majority of analysts predict a slowdown in home buying despite two rate reductions by the Bank of Canada this year.

“Even though the Bank of Canada is lowering rates, we are going to see a slowdown starting as people find that it is more expensive to buy stuff, and the home renovation activity will begin to slow down,” said David Watt, chief economist at HSBC.

In recent years, the housing market has been an important driver of the Canadian economy. It went in the opposite direction to the U.S. housing market crash and helped Canada brave the worst of the global financial crisis.

While home prices in the United States have begun to recover, in Canada they have been rising unabated ever since and several economists – although not a majority – have long warned of potential correction.

Average home prices have doubled over the past decade fueled by cheap debt, but 13 of 19 respondents said the housing market remained affordable – at least on a national basis, because low interest rates have kept debt service costs under control.

The Bank of Canada estimates the housing market is about 30 percent overvalued and has said it poses a significant risk to consumers overexposed to mortgage debt, especially in the oil-extraction part of the country where last year’s oil price shock and persistent weakness has hit the job market hard.

In July, the Bank brought its benchmark interest rates down to 0.50 percent to dull the sting of plummeting oil prices and prevent a housing market crash.
But that rate cut likely has fueled further house price rises in the already-stretched cities of Toronto and Vancouver.

Poll respondents said both these urban markets have surpassed affordability limits of the average Canadian homebuyer, outside of the condominium sector, where there are vast amounts of new supply still being built.

Some analysts fear a risk of correction, but particularly in these two urban markets, Toronto and Vancouver. Once the U.S. Federal Reserve begins to tighten policy this year, which may take Canadian mortgage rates higher.

“The (Fed) rate hike is clearly going to have an impact on the (Canadian) housing market. That’s guaranteed,” Moodys’ Hopkins said.
“But as long as the Fed continues to be the cautious agent that it is now in moving very slowly, I don’t think there will be any surprises.”
The Reuters poll also showed home building in Canada is expected to remain robust over the next year and average around 180,000 units.

What happens to your credit rating when you miss a mortgage payment?

by RICHARD MOXLEY Contributed to The Globe and Mail –

Excerpted with permission from The Nine Rules of Credit: What Everyone Needs to Know by Richard Moxley, Published by Self-Counsel Press.

Your mortgage payment doesn’t always show up on your credit report, but if you are late on multiple payments, it could affect the interest rate you’re offered from the bank when your mortgage comes up for renewal again.

If you miss three consecutive payments or more in a row, it will lead to foreclosure proceedings, which is when the bank or lender starts the process of legally taking ownership of your property due to the lack of payments. Banks or lenders don’t want to own your home, but if the lender isn’t getting paid, it will try and sell the property in order to reduce its losses. Foreclosure shows up under the public record portion of your credit report.

You may assume that bankruptcy is the worst thing you can do for your credit; however, if you are applying for mortgage financing, going through a foreclosure is the absolute worst thing you can do for your credit. Bad credit can be rebuilt fairly quickly, but very few lenders will look at providing financing for you if you have a previous foreclosure showing up on your credit report, regardless how strong your current credit is.

If you find yourself in a situation where you may not be able to make your mortgage payments, contact your mortgage lender or mortgage agent to find out what can be done. The same thing is true with any creditor.

If you don’t think you’ll be able to make a payment to any one of your creditors, it is a good rule of thumb to contact them to see if something can be worked out, especially if you contact them before the due date. I’ve never seen the attitude of pretending it will all go away actually work for anyone.

I understand that despite your best efforts, an emergency may come up, preventing you from being able to make a payment. However, the banks still feel that it is your responsibility to keep track of your accounts and pay your bills on time. Get your head around this rule and you will have a great foundation to always have amazing credit.