First of all let me clearly explain what CMHC stands for and what is it exactly.
CMHC stands for the Canadian Mortgage and Housing Corporation. CMHC is a Canadian government backed insurer that insures banks against default by mortgage borrowers.
All Canadian homebuyers who buy a home with less than 20% of a down payment must obtain mortgage insurance either though CMHC or Genworth (a private insurer with very similar fees and guidelines as CMHC).
The amount of the mortgage insurance premium is based on home much you have as a down payment, and beginning June 1/2015 the premium for borrowers who put less then 10% down will go up to 3.60% from the current 3.15%, an increase of approximately 15%.
Practically, what this means is on a purchase of $300,000 with 5% down ($15,000) a mortgage of $285,000 will carry an insurance premium of $10,260. Prior to June 1, 2015 the premium on the same sized mortgage is $8977, a difference of almost $1300.
The premium can be, and almost always is, added onto the mortgage amount. While this will cost the homeowner more money every month, there is no “out of pocket” payment needed if they don’t want to pay it up front (and most people don’t).
However what most people don’t know is that on top of this mandatory insurance premium there is provincial sales tax (PST) of 8% which IS payable upon closing (the day you take possession of your new house). On a mortgage of $285,000 this amounts to a little over $800 in tax. This is over and above the rest of the “closing costs” that your lawyer will ask you to bring in when you are about to close on your home.
A couple of other things to keep in mind: this new insurance premium increase does not apply to borrowers who have a 10% down payment or more (so the more you can put down on your new home the better) and this increase also does not apply for any mortgages that have been previously applied for and approved by your lender and CMHC. Only loans applied for and approved June 1st, 2015 and beyond fall under the new rules.
Special thank you to Laurie Foster of One Link Financial
(204-981-2354 if you would like to contact him)
If you needed help in identifying the right property and getting a list of every single home that fits your criteria both MLS and non MLS (I sell many homes annually through my proprietary “back pocket listings” that only my clients know about) then please contact me anytime at 204-981-1940 (voice or text). Apple users may iMessage me at firstname.lastname@example.org
Stay tuned for my next blog coming very soon:
“What’s the Number 1 Question to Ask your Realtor When Selling Your Home”