CMHC to Increase Mortgage Insurance Premiums

CMHC to Increase Mortgage Insurance Premiums

OTTAWA, January 17, 2017 — CMHC is increasing its homeowner mortgage loan insurance premiums effective March 17, 2017. For the average CMHC-insured homebuyer, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI's new capital requirements that came into effect on January 1^st of this year that require mortgage insurers to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.

During the first nine months of 2016:

• The average CMHC-insured loan was approximately $245,000.
• The average down payment was approximately 8%.
• The average gross debt service ratio (GDS) was 25.6%. To qualify for CMHC insurance, a homebuyer’s GDS should not exceed 32% of their total monthly household income.

Down payment between 5% and 9.99%

Loan Amount	$150,000	$250,000	$350,000	$450,000	$550,000	$850,000
Increase to Monthly Mortgage Payment	$2.82	$4.70	$6.59	$8.47	$10.35	$15.98

Based on a 5 year term @ 2.94% and a 25 year amortization 

*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.

Premiums are calculated based on the loan-to-value ratio of the mortgage being insured. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and repaid over the life of the mortgage as part of regular mortgage payments. Additional details and scenarios are included in the backgrounder below.

CMHC regularly reviews its premiums and sets them at a level to cover related claims and expenses while also reflecting the regulatory capital requirements.

CMHC is Canada’s most experienced mortgage loan insurer. Our mortgage loan insurance enables Canadians to buy a home with a minimum down payment starting at 5%. As a Crown corporation, CMHC is the only mortgage insurer whose proceeds benefit all Canadians.

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need and offers objective housing research and information to Canadian governments, consumers and the housing industry.

For additional highlights please see the attached backgrounder.

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Information on This Release:

Karine LeBlanc Media Relations 613-740-5413 kjleblan@cmhc-schl.gc.ca

Backgrounder

• CMHC’s standard mortgage loan insurance premiums will be changing as follows:

Loan-to-Value Ratio	Standard Premium (Current)	Standard Premium (Effective March 17, 2017)
Up to and including 65%	0.60%	0.60%
Up to and including 75%	0.75%	1.70%
Up to and including 80%	1.25%	2.40%
Up to and including 85%	1.80%	2.80%
Up to and including 90%	2.40%	3.10%
Up to and including 95%	3.60%	4.00%
90.01% to 95% - Non-Traditional Down Payment	3.85%	4.50%

Down payment between 10% and 14.99%

Loan Amount	$150,000	$250,000	$350,000	$450,000	$550,000	$850,000
Increase to Monthly Mortgage Payment	$4.94	$8.23	$11.52	$14.81	$18.10	$27.98

Based on a 5 year term @ 2.94% and a 25 year amortization

Down payment between 15% and 19.99%

Loan Amount	$150,000	$250,000	$350,000	$450,000	$550,000	$850,000
Increase to Monthly Mortgage Payment	$7.06	$11.75	$16.46	$21.16	$25.86	$39.96

Based on a 5 year term @ 2.94% and a 25 year amortization

• During the first nine months of 2016
  • Nearly 50% of CMHC’s transactional mortgage loan business were for loans of less than $300,000
  • Nearly 95% of CMHC’s transactional mortgage loan business were for loans of less than $600,000
  • Less than 1% of CMHC’s transactional mortgage loan business were for loans of more than $850,000

• CMHC follows OSFI guidelines for federally regulated mortgage insurers in Canada.

• Calculating the gross debt service ratio (GDS) allows potential homebuyers to estimate the maximum home-related expenses they can afford to pay each month.

GDS = Principal + Interest* + Property Tax + Heat Monthly Income

*Interest is calculated using the qualifying rate

• Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5% with interest rates comparable to those with a 20% down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price.
• CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after March 17, 2017. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to this date, regardless of the closing date. As is normal practice, complete borrower and property details must be submitted to CMHC when requesting mortgage loan insurance.
• The changes do not impact mortgages currently insured by CMHC.

MORTGAGE RULE CHANGES. Will you be impacted?

Good Morning and Happy Thanksgiving!! This is a time to give thanks and I hope that you are getting to do that surrounded by loved ones, young and old.  From my house to yours, may the thankful list be boundless. Not that I want to intrude on your long weekend festivities, but this may be as good of a time as any to provide you with some important reading on the mortgage market, and thus the real estate market. As you may have heard, there was an announcement last Monday regarding mortgage regulation changes from the Ministry of Finance.  This is following previous changes announced earlier this year on down payment rules, property transfer tax and foreign buyers' tax. Due to the depth and breadth of changes announced, I have taken the week to research, listen, and observe the reactions and comments of the lenders, brokerages, brokers, industry associations, financial experts, and the media, before I wanted to share with you the potential impacts these rules may have on you and the market place. It is without a doubt that this was a shocking and unexpected announcement and it does have the potential to have a great impact on the real estate market. However, by how much and whom will be most effected is yet to be determined.  It will take months for the market to reflect what these changes will do to the market place.  Most speculate that first-time home buyers will bare the the hardest challenges, likely removing 20 per cent of this demographic from the market.  However, investment properties (rentals), refinances, and business-for-self loans have been targeted in a round about way.  Monoline lenders, who's sole business is servicing mortgages and mortgage related products, have been forced to remove mortgage options or change policies. With an exit or limited involvement from these Monoline Lenders, the competition for these specialized products will decrease, and therefore, rates for these products will likely increase while possibly restricting approvals. Ultimately, the industry and market will adapt to these changes and they will become the new norm.  They are not all bad. They will prepare buyers should rates ever start to increase, which is a strong possibility when 5-year fixed mortgages are currently offered below 2.5 per cent, lowest on record ever.  When the Government is in a position to be able to increase rates, they will, and depending on it's implementation, it could leave some struggling to make payments.  Therefore, it's a protective measure to slow the ever-escalating house prices as well as to ensure that buyers will be able to withstand rate increases in the future. For my clients, I want you to know that I will be monitoring the market, and if and when rates start to shift, I will ensure we are setting you up for success when it comes time for renewal. I will reach out with ample time to review and assess what your future payments will look like to make sure you are positioned well for your next mortgage phase.  I personally don't foresee a drastic jump in mortgage rates in the next few years, until our economy begins to stabilize from the oil and gas crisis. However, rates are not only maintained by local economic factors, but global ones as well.  Predicting anything on a global-scale is not without it's challenges and leaves expansive room for error. For home buyers, there is hope that the prices will level off or at least soften in the coming months comparatively to what we have experienced in the last few years, mostly in the Lower Mainland and Toronto regions.  Should home values balance out, hopefully this will open opportunity for speculative buyers to be able to enter the market, even considering the new, higher qualifying requirements. For home owners, if you were thinking about a refinance to consolidate debt, complete renovations, or for investments such as schooling or properties, this will be the time to access your equity.  Some lenders have already started to increase qualifying measures, ahead of the government deadlines.  Time is limited, so I urge you to reach out now if a refinance has been in consideration for you and your family. ABOUT THE RULE CHANGES The Ministry of Finance has provided a technical backgrounder on the housing insurance rules and which rules they have changed.  You can learn more here. The Canada Mortgage Professionals Association has done a great job of summarizing the rules changes.  The four points below are the key take-a-ways, which outlines the definitive changes on the immediate horizon, but there is also consultation happening specific to "sharing of risk" in terms of mortgage defaults. The government would like to consider a shift from our current model of 100 per cent government-back mortgages to having lenders share some of the responsibility for default risk. Summary of Mortgage Rule Changes All insured mortgages will now need to qualify at the Bank of Canada benchmark rate (4.64%) instead of the contract rate offered on their commitment. This change is scheduled to come into effect on October 17, 2016. Portfolio (‘bulk’) insurance must now meet the same criteria as those that are high ratio (less than 20% down payment) insured. This change is scheduled to come into effect on November 30. This means that amortizations greater than 25 years, rental and investment properties and homes with values greater than $1M can no longer be portfolio-insured. Capital gains exemptions on principal residences will apply only to residents of Canada. In addition, there is further discussion about ‘sharing in risk’ that is currently borne in large part by the three mortgage insurers (CMHC, Genworth and Canada Guaranty). While high ratio customers and portfolio insurance funders pay for this risk, there is discussion about sharing in the cost of losses beyond just the mortgage insurers. This in and of itself could have significant implications. The Association will continue to monitor any discussion around this. If you have any questions regarding the mortgage changes or would like to know specifically how these rules may impact you, please do not hesitate to contact me at any time 778-847-8466 or irene@irenestrong.com.

Property Transfer Tax Increases for Foreign ownership of residential properties

Updated data on foreign investment show more than $885 million in foreign investment flowed into Metro Vancouver’s residential real estate market in just five weeks, representing 86% of the capital invested in the sector by foreign purchasers throughout the province.

Beginning Aug. 2, 2016, an additional property transfer tax rate of 15% will apply in Metro Vancouver to purchasers of residential real estate who are foreign nationals or foreign-controlled corporations.

As part of Budget 2016 government began collecting data to identify foreign purchasers, and better understand whether and to what extent foreign capital is having an effect on residential real estate prices.

Data collection began June 10, 2016. From June 10 through to July 14, data for all of B.C. show:

• 19,383 residential property transactions in British Columbia
• 1,276 transactions involved foreign nationals
• This shows a rate of 6.6% of transactions involved foreign nationals
• The total investment by foreign nationals was $1,024,031,118 representing 7.9% of the total investment

Data specific to Metro Vancouver show:

• Metro Vancouver accounted for 49.7% of the real estate transactions in B.C., and 73.3% of transactions by foreign buyers
• By value, Metro Vancouver accounted for a total $8.8 billion worth of transactions; foreign purchasers accounted for $885,393,373.
• The average investment by Canadian citizen or permanent resident buyers in Metro Vancouver was $911,425, while the average investment by foreign buyers was $946,945.

Updated data specific to the City of Vancouver, Burnaby, Richmond, Surrey and the capital region are shown in the attached tables.

While foreign investment in residential real estate markets is only one factor driving price increases in Metro Vancouver, it represents an additional source of pressure on a housing market struggling to build enough new homes to meet demand. The Province’s additional tax on foreign purchases will help manage foreign demand while new homes are built to meet local needs.

Property transfer data also show that the measures announced in Budget 2016 continue to benefit families buying newly built homes. Budget 2016 introduced the Newly Built Home Exemption to the Property Transfer Tax, which can save purchasers up to $13,000 in property transfer tax when purchasing a newly constructed or subdivided home worth up to $750,000.

Data to July 14, 2016, show:

• 4,027 families have saved an average of $7,698 on their newly built homes.
• Total savings to families: $31,770,029
• 191 per week on average (21 weeks)
• 27 per day on average.

The existing First Time Buyers Program has also helped more than 11,000 families buy their first home this year.

Learn More:

Data on foreign investment in residential real estate: https://news.gov.bc.ca/files/Property_Transfer_Tax_Report_Jun_10_to_Jul_14_2016.pdf

Presentation: https://news.gov.bc.ca/files/Housing_Data_Update_July_26_2016.pdf

Housing affordability: http://housingaffordability.gov.bc.ca/

Down Payment & Property Transfer Tax Changes

More major changes were implemented in the mortgage industry last week. Both the Federal and Provincial Governments had their say, targeting Down Payments and Property Transfer Tax. One to suppress the heated housing market and the other to stimulate new builds and generate more tax revenues from luxury home buyers. Between 2008 and 2012, four rounds of Federal Government changes have been made to tighten eligibility rules for new insurable loans, including:

• Increase the minimum down payment to 5 per cent;
• Decrease the maximum amortization period to 25 years;
• Limit the maximum insurable house price to below $1 million;
• Apply maximum debt service-to-income ratios; and,
• Apply a mortgage rate stress test for mortgages with terms of less than 5 years or variable rates.

This is in addition to Mortgage Insurer, CMHC, removing stated income and second home programs in 2014 and announcing increased premiums in 2015, which was followed by Genworth and Canada Guaranty, two privately owned mortgage insurance companies.

DOWN PAYMENT CHANGES

Effective Monday February 15, 2016, homes purchased over $500,000 will require more than a 5% down payment.  For any portion over $500,000 up to $1,000,000, the minimum increases to 10%. The down payment over $1,000,000 remains at 20%.

Department of Finance Release, "Government of Canada Takes Action to Maintain a Healthy, Competitive and Stable Housing Market"

Department of Finance FAQs

Globe & Mail reports, "New mortgage rules go into effect, part of Liberal plan to limit risks."

PROPERTY TRANSFER TAX CHANGES

After announcing on Tuesday February 16, 2016, new Property Transfer Tax (PTT) changes came into effect Wednesday February 17, 2016.

Despite repetitive appeals by the BC Real Estate Association to lobby for lower PTT, most recently in October 2015, as noted in the article "Major Change to Property Transfer Tax Unlikely" covered by Barbara Yaffe of the Vancouver Sun, tax cuts were not part of the announcement.

Key points of the PTT budget include:

1. First Time Home Buyer Exemption - No Change No changes to the First Time Home Buyer Exemption limits.  This remains at $475,000 or lower, with partial exemptions between $475,000-$500,000;

2. Newly Build Home Exemption All buyers (whether First Time Home Buyers or not) no longer pay PTT on purchases of NEW homes up to $750,000 in value.  The Buyer must be a Canadian citizen or a permanent resident.  There is a partial exemption for homes between $750,000 and $800,000;

3. Higher Tax over $2 Million There is now a 3% tax on amounts over $2,000,000.

Read more by Huffington Post, B.C. Budget 2016: Real Estate Market To See Tax Changes.

QUESTIONS?

If you have any questions regarding these changes, please don't hesitate to call or email Irene at irene@irenestrong.com or 778-847-8466.

RRSP Deadline has come and gone. What can you do now?

If you count yourself amongst one of the many Canadians for whom March 2 came and went this year without a second glance at the calendar, don't worry: even though the contribution deadline for 2014 RRSP's has passed, there is another investment option that may be worth considering.

While RRSP’s are a wonderful vehicle for many Canadians, for others they are not necessarily the best option for everyone. An alternate or complimentary investment strategy consideration for many Canadians is the Tax Free Savings Account (TFSA). TFSA’s are simply another investment vehicle, but the taxation rules are different. Interestingly, many people are surprised to learn that despite having the words “savings account” in its title, their TFSA can hold the exact same investments that their RRSP can, such as GIC’s, mutual funds, or stocks, amongst other choices. TFSA’s can be a phenomenal tax shelter, when used properly and invested wisely.

Canadians in the lower income tax brackets may find a TFSA makes more sense over investing through an RRSP as they are perhaps not as concerned with receiving tax deductions upfront, and would rather experience tax-free growth and withdrawals down the road. For others, a combination strategy could provide a better long-term outcome.

Why not speak to a financial professional to determine what investment vehicles and strategies will make your money work as hard for you, as you do for it?

Please don’t hesitate to contact me if you have any questions about RRSP’s or TFSA’s and what might make the most sense for you, or if you’d like a complimentary no-obligation review of your current portfolio.

Jaclyn Carmichael Financial Coach 1 (604) 888-4934 (w) 1 (604) 220-5719 (m)