CMHC Announces Fee Increase - Effective April 1, 2015

[TimLacroix]

Since 2008, the Finance Department has announced one mortgage restriction after another, largely in an effort to wean lenders from government support. And just when you think there’s no more regulations to come, they tighten further.

On December 1, CMHC announced it is to triple the charges it makes to some financial institutions. The fee increases will be for guaranteeing loans in the mortgage-backed securities market, which the agency operates under the National Housing Act.

Some experts are predicting that the hike in fees will filter down to homebuyers with the likelihood of a few hundred dollars being added to the cost of a mortgage. The fee for mortgages with a five-year maturity will rise from 0.2 per cent to 0.6 per cent.

Taxpayer exposure to government-backed MBS won’t change in any meaningful way. (MBS, by the way, are comprised of insured mortgages that are already government-backed.) So what’s the point?

Perhaps more revenue for our friends in Ottawa?

[ercchry]

how do these fees compare to the other two insurers?

[TimLacroix]

Originally posted by ercchry
how do these fees compare to the other two insurers?

So far no announcement from Genworth or Canada Guarantee... status quo for now!

[Perceptionist]

So this only adds cost to mortgages insured by CMHC? How much will this increase the costs of say a $380,000 mortgage with 5% or $20,000 down?

[JustinMCS]

Is this for new mortgages or for existing mortgages also?

[flipstah]

Originally posted by JustinMCS
Is this for new mortgages or for existing mortgages also?

I thought existing mortgages are locked in or just the rate?

[TimLacroix]

Originally posted by Perceptionist
So this only adds cost to mortgages insured by CMHC? How much will this increase the costs of say a $380,000 mortgage with 5% or $20,000 down?

On approximately a $250,000 mortgage the additional cost to the lender is ~ $600.

The premium increase is to the lenders not to the current Insurer premiums that clients pay on High Ratio mortgages.

The cost is currently a cost to the lender by CMHC. We do not know at the moment whether or not the lenders will cover this cost or offset it by raising interest rates.

Example: if current rates are 2.99% on a 5 year, we could see lenders offer slightly higher rates to offset their costs... by 0.05% or higher.

[TimLacroix]

Originally posted by JustinMCS
Is this for new mortgages or for existing mortgages also?

The increase to the lenders is in April 1, 2015 so any approved mortgages through CMHC will not be impacted... unless the mortgage amount changes and requires re-approval after April 1, 2015.



Originally posted by flipstah


I thought existing mortgages are locked in or just the rate?

There is no increase to the CMHC premium to clients... the fee increase is to the lenders. With that said, both are protected for the client is approved already.

[blownz]

Here is the biggest issue I have with insuring mortgages:


Originally posted by TimLacroix
Current Rates to Open Week December 15, 2014 (http://cgymortgage.com/pages/Calgary+Mortgage+Rates/55)

Restricted / Conditions apply Rates
Starting at:
5 Year Fixed - 2.74%* High Ratio
5 Year Fixed - 2.84%* Conventional
5 Year VRM - 2.20* High Ratio
5 Year VRM - 2.30* Conventional


A high ratio loan with mortgage insurance should not have the ability to get better rates than someone with a conventional mortgage.

But since this is the case, I hope they keep increasing fees.

It is ridiculous to think that person A puts $100K down on a $500K place and pays 2.84% while person B puts down only $25K and pays 2.74%. You should not be rewarded with lower rates because you are not disciplined enough to save up for a downpayment. Paying for your insurance should be punishment and not get you a lower rate.

[FraserB]

I'd be willing to bet it's about the bank wanting to maximize the interest generated and not "rewarding" people with less than 20% down. They make more interest when the DP is lower, so to offset potential loss on high DP mortgages, they have a higher rate

[blownz]

They do it because they have no risk with the high ratio mortgage because those mortgages are insured. They only have risk with the 20% or more down payment even so they charge a higher rate.

It is total bullshit IMO

I personally think CMHC (and the others) should only insure the amount up to 20%. So in the example I gave above, the guy putting $25K down on a $500K place would get insurance for $75K and the bank would be on the hook for the $400K - exactly the same amount they are on the hook for with the guy that put $100K down. Who do you think the bank would give a better rate to in this case?

[TimLacroix]

Note that not all lenders or investors premium the rate for a conventional (> 20% down payment) vs. High Ratio mortgages.

There are a number of variables that lenders/ investors look at before setting rates and that is why we mention that not all rates are created equal.

Rate shopping on the internet is to present the lowest rate and get you to call or email. The lowest rates out there have conditions and in many cases is not for everyone as it will cost you more money than what you think you will save.

Genworth Canada released a stat that 27% of New Mortgage since 2007 are High Ratio. This stat is just Genworth and does not take into account what CMHC has done nor Canada Guarantee.

But as you can see, the mortgage changes over the past year has tightened up to protect tax payers from losses. CMHC has decided not only tighten up with consumers but now put more ownness on the lenders to not rely on CMHC... by increasing the cost to insure mortgages.

This is a good time to note that lenders can insure or used to insure some conventional mortgages too. So even if you put down 20% or more, your mortgage may still have been insured.