Anyone buying a home in Canada and who has less than 20 per cent of the purchase priceto use as a down payment is going to see the cost of that purchase increase a little bit come May 1st, 2014.
The increase will happen because the Canada Mortgage and Housing Corp., a federal agency that insures all so-called high ratio mortgages, is raising its premiums by 15 per cent. It is the CMHC's first hike since the late 1990s.
CMHC mortgage insurance allows those with a modest down payment to get their foot in the home ownership door. Depending on the size of a buyer's down payment, the insurance premium currently ranges from 0.5 per cent and 2.75 per cent of the purchase price. On a $250,000 purchase, that translated to a $6,875 premium paid down over the life of the mortgage.
Under the new fee structure, the premium will rise to a maximum of $7,875, an added cost of about $5 per month on the typical 25-year, $250,000 mortgage. (We always use the $250,000 example but the average cost of a Montreal single-family home is actually close to $291,000. Let's not be too picky.)
On its own, the rate increase is not a killer, but it does come a 18 months after CMHC tightened mortgage rules so that buyers can spread their mortgage over a maximum of 25 years instead of 30. That sidelined some first-timers who were scared off by the prospect of seeing their mortgage payments climb by more than $150 a month.Here comes another $5.
The CMHC has a handy chart showing the different cost increases.
The rate change will not affect anyone who already has a CMHC-backed mortgage, only new business. The effects won't be as dramatic as the change to amortization rules instituted in June, 2012. Still, every time the feds tinker, the market tightens just a bit.