This past spring we saw mortgage insurance rated go up again. That’s the third increase in three years! Wow. But what does this mean for prospective homeowners and local real estate investors? Let’s find out.
What You Need to Know About the Recent Rise in Mortgage Insurance Rates
Under 10% down will cost you an extra 0.4% now. So 4% of the loan amount will be added to your Mortgage. My calculations show an extra $1,500 approximately for a mid-sized mortgage. I saw on the CMHC website they are showing it only being an extra $10/month or so. No big deal. In my mind it all adds up.
The premium will be up to 4.5% of the loan amount if you utilize some of the more creative mortgage solutions out there. An example would be a flex or borrowed downpayment. One of my clients sent me some information by the BC government who will lend first time home buyers a portion of their downpayment with an interest free loan. I find it very interesting that the BC government is trying to help out the very target market CMHC is trying to limit. I watched a video this week of the president of CMHC saying that he is purposely trying to cut back demand with first time home buyers because they would be the most impacted “if” the economy was to possibly have a down turn.
In 2017 the government forced banks to have a higher amount of capital per mortgage being lent out to Canadians. This was one of the triggers CMHC says was cause for the recent increase in fees. Other triggers cited were overall financial stability, market risks, amount of insured deals being issued and lastly due to competition in the market place.
Believe it or not we are seeing interest rates for these insured deals go down. The competition by mortgage lenders going after the same business is causing this. I also read this week that CMHC reported that their overall volumes of lending is down about 20% since October 2016. So for home owners with less than 20% down, this is actually good news for the ones that can still qualify. Don’t forget with this increase in fees it will drive up the loan amount to the point that some borrowers will be pushed over their maximum limit and get turned down.
The opposite is true for the folks putting down a full 20% either on their own home or on an investment property. Even the extended amortizations with some banks these days come along with a 0.15% interest premium. Kind of crazy if you ask me since these products tend to be way less risky.
This season will be very interesting to watch. Typically with the increase in purchase activity all of the mortgage lenders bring out their best pricing of the year. Margins could come down very nicely as competition will bring out this year’s best rates soon. With this latest increase to the mortgage insurance costs though we could see some pressure to not cut rates so deep. What I mean here is that those lenders who “back end” insure their mortgages before they sell them off to investors are seeing an increase in that cost as well. This due to a bulk portfolio cost increase. Over all though we will see rates come down but perhaps not quite as much as years gone by. Only my prediction any how.
These are interesting times and a person still should be very happy to have an interest rate less than “normal”. In my mind that would be 5% or so. People always ask me where rates are headed. I believe they must get back to that mark sometime here. How much and how fast really becomes the question.
As always contact my office for more specific questions on rates or a deal you may be working on.
All the best!