Randy Miller

Broker Of Record

Urban Avenue Realty Ltd., Brokerage

Whitby & Brooklin Real Estate

Office 905-430-1800

Direct 905-430-9444

Email: randy@randymiller.ca

Categories

Mortgage News Canada

Bank of Canada holds mortgage rate steady

The Bank of Canada has decided to hold the rate steady. Variable rate mortgages remain unchanged. 2015 could be status quo for the rate,  Bank of Canada now estimates economy reaching and remaining at full capacity around the end of 2016.  

CMHC and mortgage insurers increase rate premium

In early April 2015, CMHC (Canadian Mortgage and Housing Corporation) announced effective June 1, 2015, the mortgage loan insurance premiums for homebuyers with less than a 10% down payment will increase by approximately 15% . The remaining two private insurers, Genworth and Canada Guaranty, followed suit with the same announcement.   This affects owner-occupied homebuyers, a vast majority being first time homebuyers.  Rental property is not affected by this announcement, as the required down payment is above the 10% threshold (minimum 20%).  

The mortgage insurance premium is added to the mortgage.  The immediate effect is a modest increase in monthly payment, approximately $7 more per month (based 5% down payment on $350K purchase price, 2.79%,  25 year amortization).  The more significant impact is the additional premium increases the mortgage, by approximately $1575 in the example previously mentioned.  

This is yet another rule that hits mostly first time homebuyers ready to enter the market.  Over the last several years, mortgage rules have tightened up, shutting out more prospective homebuyers.  Conservative lending is important to maintain stability, however if too many consumers are shut out, the pendulum may swing a little bit the other way.  For now, these are the new rules, plan accordingly and assume insurers will maintain their conservative approach.

As a consequence of the rule change, there will be a large influx of homebuyers purchasing and submitting application before the June 1st deadline. This happened in prior years when CMHC made a rule change. This means everyone applying for mortgages will be affected due to the large volumes presented to lenders and the insurers.  Take note, and provide yourself enough time for processing financing and also check with your lawyer to make sure they can accommodate your closing date.

If you are planning to buy a house in Whitby, Brooklin or other areas within Durham Region, contact me. I can help you with the buying process and refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product.

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Randy Miller
Broker of Record
Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby

905-430-1800

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Mortgage Insurance Premiums going up again

As a result of its annual review of its insurance products and capital requirements Canada’s federal housing agency is raising its mortgage insurance premiums.

Canada Mortgage and Housing Corp. said it is raising premiums on the highest-risk mortgages – borrowers who have down payments of less than 10 per cent – by 15 per cent starting June 1.

The changes come as part of a broader plan by the agency, announced last August, to boost its target capital reserves to 220 per cent above the minimum set by the Office of the Superintendent of Financial Institutions, up from 200 per cent previously.

The increases only apply to new mortgages for borrowers with small down payments. Those who put down more than 10 per cent of the purchase price aren’t affected. Premiums will also remain unchanged on CMHC’s portfolio insurance, which lenders take out on bundles of uninsured mortgages so they can securitize them, as well as the agency’s insurance for apartment buildings.

The effects will be modest for affected borrowers. An average Canadian borrower who can afford to pay the only the minimum 5-per-cent down payment typically takes out a mortgage of $252,000, CMHC said. Premiums for those borrowers would rise $5 a month, or about $1,500 more over the course of a 25-year mortgage.

CMHC predicted the changes would “not have a material impact on housing markets,” suggesting the agency isn’t looking to cool the housing market. Senior vice-president Steven Mennill stressed in a call with reporters that the changes were a “business decision” related to higher capital requirements and “not in any way related to a change in policy or approach.”

One thing is clear: By limiting increases only to borrowers with less than 10-per-cent down payments, the federal corporation is concerned that it was underpricing the risk on the most indebted borrowers.

Mortgages with lower levels of equity are typically more vulnerable to a housing shock and require higher levels of capital reserves to account for potential losses, which means higher premiums for riskier borrowers.

“As we continue to enhance our modelling capabilities, we continue to be more refined in our decision making around that relationship,” said CMHC chief financial officer Brian Naish.

“If the purpose was to ensure that there were adequate reserves against future losses, then this makes sense because their biggest losses will be at the end of the continuum with small amounts of down payment and that’s exactly the category where they increased the premium.” said Ian Lee, a professor with the Sprott School of Business at Carleton University.

It is the second time the organization has boosted insurance premiums. It raised them across the board last May after nearly a decade of silence on the issue. At the time, CMHC promised to review its insurance premiums once a year, which is what sparked the most recent changes.

Source: by TAMSIN MCMAHON,The Globe and Mail, CMHC to boost premiums for high-risk home buyers

If you are planning to buy a house in Whitby, Brooklin or other areas within Durham Region, contact me. I can help you with the buying process and refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product.

Randy Miller
Broker of Record
Royal Heritage Realty Ltd.
Offices in Pickering and in Whitby

905-430-1800

Post CommentComments: 0Read Full Story