New high-ratio premiums more detrimental than zero-down programs?

by |
One broker believes clients now putting less than 10 per cent down will be more overleveraged than those who purchased with zero down.

“I have to agree with [the] statement that equity will be non-existent in home bought under the flex down programs,” Len Lane of Verico Brokers for Life wrote on “By the time a client borrows their 5 per cent and capitalizes the CMHC fee they will be at 103.85 per cent of financing; which, if memory serves me right, is even higher than when we had a true zero down program.”

Industry professionals raised the equity issues clients will face under the recently implemented premium changes at two of the largest mortgage default insurers.

“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.”

CMHC announced last Friday 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 followed suit Monday 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.
  • on 2015-04-08 1:11:36 PM

    So do you want the insurers to eliminate the 5% down program or make the client/buyer come up with the extra cash?

  • Debbie on 2015-04-08 1:24:49 PM

    Elimination and forcing the client to come up with the extra cash are the same thing, if you can come up with the fees outside of the mortgage you might as well come up with 10%. It will greatly hurt many peoples chances of home ownership. 5% down is a good program, risk is a fact of life, get over it!!! Increasing premiums isn't going to eliminate any of the risk, its just a new tax grab. 5% down buyers know there will be no equity for a very long time, and if mortgage associates (including banks) are explaining things properly, they should be telling clients that refinance will not be an option, or if they plan on selling in a year or two, they will actually lose money. After that, anything can happen in someones life, we can't and shouldn't try to predict or foresee it. We are doing the best we can for the buyer and the lender at this time and date.

  • Bob on 2015-04-08 3:21:20 PM

    Eliminate cash back/borrowed funds as a down payment option. Over leveraged clients will have great difficulty to sell or transfer mortgage if the market takes a downturn. If you have no skin in the game its very easy to walk away with a no recourse mortgage

  • Gary on 2015-04-08 3:58:48 PM

    It appears that the Feds have forgotten what CMHC was originally designed/created help Canadians get into home ownership. With the changes made by the previous Finance Minister, and the constant increase in premiums, the original purpose of CMHC's existence seems to be rapidly eroding.

  • Debbie on 2015-04-08 4:16:06 PM

    I agree Gary, CMHC should be able to take the good with the bad. If you can't take the heat, get out of the kitchen...
    They were real happy to take the premiums for purchases when there was 0 down, stated income. Huge premiums made on those deals. How high is the delinquency rate on all of those mortgages?
    No skin in the game pertains to people that purchased investments with 5% down, they don't mind walking away from a rental, nobody is that flippant on their own home.

  • Bob on 2015-04-08 5:21:31 PM

    Debbie tell that to the people (some of my friends) who walked away from their homes in the 80s when their rates skyrocketed and they couldnt keep their homes in Alberta because of the payments.

  • Debbie on 2015-04-08 6:38:59 PM

    Hey Bob, that wasn't anything to do with an insured mortgage or not. In fact when that happened there was no such thing as 5% down at all.
    Those people could have been walking away from a home with 50% equity. That even validates further my point about why people walk away from a mortgage, it has nothing to do with how much skin in the deal they have. BTW it happened in BC too!

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions