How Will Higher CMHC Insurance Premiums Affect Your Mortgage?

Hi all, and welcome back to the Mortgage Studio blog! I’m Michele Ellis, a mortgage broker in Squamish, B.C., and my goal is to spread awareness of the mortgage industry and changes therein to my fellow Canadians. This is only my second post of the year, but there’s already a lot going on! The big news this week is that Canada Mortgage and Housing Corporation (CMHC), the most experienced mortgage loan insurer in the country, has announced that it’s “increasing its homeowner mortgage loan insurance premiums effective March 17, 2017.”

That sounds daunting, so let me break it down a little bit. In Canada, homeowners who put down less than 20% of the purchase price of their home are required by law to pay mortgage insurance (which protects the lender in case the homeowner defaults on the loan). The insurance premiums vary depending on the size of the down payment and the price of a home – this is called the loan-to-value ratio – and currently the standard premium ranges from 0.6% of the mortgage value (when the loan-to-value ratio is low) to 3.85% of the mortgage value (when the loan-to-value ratio is abnormally high). Starting March 17th of this year, the new range of those values will shift so that almost all premiums will be higher than they are today, with 4.5% of the mortgage value being the new upper limit.

CMHC to Increase Mortgage Insurance Premiums

So what does that mean for a mortgage insured under the new rules? According to CMHC (via CBC), it means very little: “It expects the changes announced Tuesday to work out to an extra $5 a month, on average, per borrower.” That doesn’t sound like much, but if you multiply it by the lifetime of a mortgage – it means an extra couple thousand dollars.

But here’s the good news: “Anyone who already has a mortgage or has applied for one will be grandfathered into the old rates.” That means that if you have a mortgage now, or apply for one before March 17th, you avoid this insurance premium increase entirely. If you’ve been thinking about it at all, or if you have any questions about how these new rules affect you specifically, I urge you to give me a call at 604.892.4647. As a mortgage broker with years of experience dealing with shifting economic climates and constantly changing rules, I know exactly how to navigate the landscape to get YOU your perfect mortgage. It doesn’t cost you anything at all to ask for my advice, but it could save you thousands of dollars in the long run if you do. I get paid by lenders directly, so my only interest is finding you the right fit – and I guarantee I will.

On that note, have an excellent weekend and a wonderful rest of the month! I hope to hear from a few of you before March 17th!

Michele Ellis – Senior Mortgage Broker, The Mortgage Studio

What You Should Know About Interest-Free Loans For First-Time B.C. Homebuyers

Happy New Year 2017!

Hi, Happy New Year, and welcome back to the Mortgage Studio blog! First and foremost, I want to say thank you to Squamish for another successful year in business. The support of this community means the world to me, and I look forward to another year of helping people find their perfect mortgages.

And now, back to business. In December I wrote about the year in mortgages 2016, thinking that there couldn’t possibly be anything else to cover before 2017 rolled around. Turns out there was one last bit of news I should have held out for, because the day after I published that year-end round-up, the B.C. government announced the Home Owner Mortgage and Equity Partnership program. In a nutshell, this new program aims to “help first-time homebuyers cover the cost of a mortgage down payment with an interest-free loan” (via CBC).

This is an important shift in the B.C. mortgage market, so it’s important B.C. homebuyers understand all the facts. From the official press release: the B.C. HOME Partnership program will provide first-time homebuyers “up to $37,500, or up to 5% of the purchase price, with a 25-year loan that is interest-free and payment-free for the first five years.” With that goal, the province is planning to invest “about $703 million over the next three years to help an estimated 42,000 B.C. households enter the market.” As premier Christy Clark puts it: “Our B.C. government wants to be your partner, if you want to buy your first home.”

As noble a goal as that is, and as helpful as it could prove to be for first-time homebuyers, the HOME Partnership program isn’t necessarily a great solution to the problem of skyrocketing home prices. There are two main issues that will follow these new interest-free loans: increased debt and the risk of rising prices. About the former, B.C. NDP housing critic David Eby says this (again via CBC):

“The risk of attacking this problem by encouraging people to take on more debt instead of providing more affordable housing is that people will be at increased risk of default if interest rates go up.”

In other words, this short-term solution could end up being a long-term problem. That said, it’s also worth noting that the B.C. government “has committed $855 million over five years, including $575 million this year, to support the construction or renovation of 4,900 units of affordable housing throughout the province.” Until this new program has had some time to establish itself, it’s hard to say how difficult it will be for its applicants to manage their debt – especially considering how the program is already targeting “a very privileged set of people” (according to sociologist Nathanael Lauster in an incisive analysis).

The second potential problem – the risk of rising home prices – is summed up nicely by UBC Sauder School of Business economist Tom Davidoff as “too much demand chasing too little supply”:

“People are going to bid exactly what they are willing to pay. Now you tell them you are going to give them more money … and it encourages them to bid more for the property. So to the extent you have multiple first-time home buyers bidding on the property, all this does is hand money to the property owner.”

Basically, if homebuyers suddenly have more money to spend, home sellers suddenly have more money to ask for, and property owners pocket taxpayer money with no tangible benefit for consumers. More likely to happen is that these loans will spark more first-timers to buy, which might drive up prices slightly but could still end up being a net positive. Again, we’ll have to monitor the situation for a few months before saying anything for sure – and I’ll be watching closely.

The B.C. government will start accepting applications for the HOME Partnership program on January 16, 2017. If there are any of you out there looking to buy your first home, please give me a call at 604.892.4647. I can answer all your questions about the process, run you through your options, and make sure that you get your perfect mortgage. That’s my only goal as a mortgage broker, and it will remain my only goal no matter how many new programs and regulations get introduced in this province. And remember, it costs nothing to give me a call! My phone is always on, because people always need mortgages.

On that note, Happy New Year! Let’s get out there and make 2017 the best year it can be!

Michele Ellis – Senior Mortgage Broker, The Mortgage Studio