CMHC (Canada Mortgage And Housing Corporation) recently announced they will be increasing their mortgage insurance premiums effective May 1, 2014. This will affect all high ratio mortgages, meaning buyers with less then 20% down payment. Here are a few key things to remember regarding CMHC and the increase.
- Banks must insure all high ratio mortgages, in case of default
- CMHC premiums are added onto your mortgage loan amount, the buyer does not pay out of pocket for this on closing
- The PST (8%) charged on the premium is due by the buyer on the closing date and is part of the closing costs
- The change will have zero impact on current homeowners
- Old rates will apply even if your closing date is after May 1, 2014 as long as you applied for the mortgage before May 1, 2014
- CMHC said the premium change should cost Canadians on average of $5/month on their mortgage
- Genworth and Canada Guaranty (private mortgage insurance companies) will follow suit also for May 1, 2014
My friends over at Ratehub put this chart together showing the old premiums and the new ones
What Does This Mean For Buyers In Toronto?
Honestly not that much! I don’t think we will see a frenzy of buyers trying to purchase something by May 1, 2014, because it won’t have a big effect on monthly mortgage payments. Yes if you want to save a little bit of money, then try to purchase something by the cut off date, but don’t sweat it if you don’t. The effect of the change will be felt in the closing costs. Buyers have to pay PST (8%) on the premium amount on the closing date, therefore if the premium amount goes up, so does the tax paid.
As a buyer, are you worried about the change? Will you try to purchase a property before May 1, 2014?
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