In Canada, lenders typically require Buyers with less than a 20% downpayment to pay for mortgage insurance, offered by the Canada Mortgage and Housing Corporation (CMHC). The size of the premium is calculated as a percentage of the mortgage and based on the amount of the downpayment – the higher the downpayment, the lower the premium.
On Friday, CMHC announced that they are increasing CMHC premiums as of May 1st, 2014. Because most people add the cost of CMHC insurance to their mortgage and pay it over 25 years, the net impact of this increase is estimated to be $5 a month for the average Buyer, however it is important to look at the real-dollar impact of the CMHC increase:
- For a $250,000 mortgage, a Buyer with 5% down will now be paying an additional $1,000.
- For a $450,000 mortgage, a Buyer with 5% down will now be paying an additional $$1,800.
- For a $250,000 mortgage, a Buyer with 15% down will be paying an additional $125.
If you like math, here’s the formula for how CMHC Insurance premiums are calculated:
What the Premium Increase Means to the Average Toronto Buyer:
- The higher your downpayment, the less CMHC insurance premium you will have to pay.
- To avoid the increased fee, make sure that your lender submits a request for CMHC insurance for you prior to May 1, 2014.
- The closing date on your new home is irrelevant, but you’ll need to have an Agreement of Purchase and Sale in place and have your mortgage in process by May 1, 2014.
What am I really saying? If you have a 5% downpayment and want to save a couple of thousand bucks, buy a home before May 1st.