CMHC price hike to negatively affect homebuyer equity position

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An average $5-a-month hike to mortgage insurance premiums may seem inconsequential, but brokers believe the effect on homebuyer equity will prove disastrous.

“What is lost in the $5-per-month analogy is the erosion of a homebuyer's initial equity position brought by the higher premium,” Shaun Serafini of Dominion Lending Centres Mortgage Excellence wrote on “They are now getting less than 1.5 per cent equity in a home despite coming up with five per cent down payment (not a small feat in itself these days). This is almost a full percentage of equity loss from the last wave of premium increases.”

Serafini argues that when a homeowner encounters financial trouble, using equity is often the main way to rectify the problem.

“They will now be further behind the mark in terms of equity from the outset and CMHC doesn't seem to care too much about that fact,” he wrote.

CMHC announced late last week that effective June 1 insurance premiums for those who have less than a ten per cent down payment will rise 45 basis points to 3.6 per cent. The Crown Corporation said the move will only add about $5 per monthly payment.

This is the second increase in two years, as CMHC hiked its premiums from 2.75 per cent to 3.15 per cent in 2014.

Genworth quickly followed suit by increasing its mortgage default insurance premiums by 15 per cent for all homebuyers who put down less than ten per cent of a home’s purchase price.
  • Jake Abramowicz on 2015-04-07 11:54:39 AM

    The only way to cool the market will be to make the minimum down payment 20%.

    This change will have zero impact on the market at all.

    Furthermore, people should not rely on their equity if they only have 5-15% down payment to begin with in case of trouble as the broker above is stating. Why would/should CMHC are about that? That mindset is what's getting us in trouble: using your house as a bail-out ATM during tough times.

    People must focus on paying down debt asap at the current low rates, not wondering how they can tap into equity.

  • Len Lane on 2015-04-07 12:32:50 PM

    I have to agree with their statement that equity will be non existing in home bought under the flex down programs. By the time a client borrows their 5% and capitalizes the cmhc fee they will be at 103.85% of financing. Which if memory serves me right is even higher than when we had a true zero down program.

  • Debbie on 2015-04-07 12:39:25 PM

    I agree with Jake, homeowners with 5-15% shouldn't be worried about the equity they have because they don't have any...not sure CMHC needed to raise the rates though....there was talk of getting rid of 5% down all together and if this was the compromise I guess it will have to do. We need 5% down payments, most first time home buyers cant get into the market without it...and many 2nd and 3rd time buyers are having the same problem, not enough down. Its a good product leave it alone.

  • Aaron Vaillancourt on 2015-04-07 12:47:28 PM

    Perhaps its time to consider disallowing the capitalization of insurance premiums altogether.

  • Len Lane on 2015-04-07 12:48:42 PM

    Or maybe it is time to do it like they do in the USA and the insurance just becomes a monthly payment just like your life insurance.

  • Randy on 2015-04-07 3:13:35 PM

    I do agree that they should disallow the capitalization insurance premiums. It would be better for the buyer in the long run. A 5% will be 5% equity and the loan will be 95% if insurers premiums are paid upfront by the buyer and not capitalize else the buyer are down by 3.6% plus just by having the insurance premium capitalize. That is not good. Bottom Line: OUT with the CAPITALIZATION of insurance premiums.

  • Kuldip S Panesar Homeland Mortgage Corp. on 2015-04-07 4:11:22 PM

    To own a house with 5 % down is a privilege for the first time home buyer, increase in the mortgage payment of $ 5 per month is a negligible amount. If mortgage insurance premium is to be paid upfront and to add the closing costs it will be hard for the first time buyers to own the house. With increase in insurance premium will not have any adverse effect on the housing market.

  • Warren Ross on 2015-04-07 6:53:11 PM

    I thought insurance premiums were supposed to take into consideration good and bad periods when the premiums are first established? Certainly CMHC should have a war chest of past premiums collected to pay out any claims without charging the public more. Also since claims are still relatively low, I don't see the rush to raise premiums. It seems like the government is trying to slow housing through a tax grab. I guess that's what one does when their expecting deficits.

  • Mortgage Guy Geoff on 2015-04-07 7:11:51 PM

    Typical...instead of addressing the real problem unsecured consumer debt, we instead are making it more difficult for people who want to be homeowners but have to scrape together enough for what admittedly is a meager down payment. But that's better then the alternative: would be first time buyers who simply can;t catch up enough to get that down payment however meager.

    I think we would all agree that in general home ownership is good so why make it harder?

    At least max'ing out your mortgage capability is to buy an appreciating asset. What does max'ing out your credit card normally result in?

    Aye aye aye...

  • Debbie on 2015-04-07 7:22:59 PM

    Agreed Geoff
    why are they picking on low interest, secured debt and handing out high interest credit cards like candy? I've heard opinions like "its like comparing apples to oranges" but I see it as the elephant in the room.

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