Canada Mortgage & Housing Corporation (CMHC) Premium Changes effective May 1, 2014 on owner occupied, self-employed, & 1-4 unit rental properties.
CMHC mortgage loan insurance helps protect lenders against mortgage default. It enables consumers to purchase homes with as little as 5% down payment from own resources or gifted funds. In most case, it eliminates the need to have 20% down payment as currently regulated under the Bank Act. CMHC does charge a premium to the client in exchange for the minimum down payment. They calculate the premium after the down payment has been applied to the mortgage and allows the consumer to fully amortize the premium over the life of the mortgage, eliminating the need for a larger cash outlay from the consumer. This is the first premium increase since 2002/2003 and 2005/2006 where decreases were made. CMHC continues to approve and support the minimum down payment programs so young home buyers can realize their dream(s) of home ownership. The premium increases make a difference of between $5 to just under $10 per month in a mortgage payment depending on the dollar amount of the mortgage. Breaking this increase down further, after May 1, 2014, the increase will cost the consumer anywhere from $0.18/day to $0.30/day to their mortgage payment or less than a cup of coffee per day.
We certainly cannot predict how the consumer will react to the proposed premium increases, however when you take a look at the overall cost per day, it would not suggest that consumers will be backing off from high ratio financing any time soon.
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