Mortgage Default Insurance or CMHC Insurance

Mortgage Default Insurance or CMHC Insurance Restrictions Apply

Mortgage default insurance, which is commonly referred to as CMHC insurance, is mandatory in Canada for down payments between 5% (the minimum in Canada) and 19.99%. Mortgage default insurance protects lenders, in the event a borrower ever stopped making payments and defaulted on their mortgage loan.

Although mortgage default insurance costs homebuyers 2.80% – 4.00%1 of their mortgage amount, it does allow Canadians, who might not otherwise be able to purchase homes, access to the Canadian real estate market. Without it, mortgage rates would be higher, as the risk of default would increase. Lenders are able to offer lower mortgage rates when mortgages are protected by mortgage default insurance, because the risk of default is passed along to the mortgage insurer.

There are some requirements you have to meet in order to qualify for mortgage default insurance:

  • The maximum amortization for insured mortgages is 25 years.
  • If the purchase price is between $500,000 – $999,999 a higher down payment is required. The minimum down payment is 5% of the first $500,000, and 10% of the remaining amount.
  • Mortgage default insurance is not available on homes purchased for more than $1 million; this means that a 20% down payment is required on these homes

Minister can’t say if foreign buyer tax will affect housing market

TORONTO — Ontario’s finance minister can’t say how much a tax on foreign homebuyers — the centrepiece of the Liberal government’s new package of housing measures — will affect the red-hot Greater Toronto Area market.

Economists and real estate experts have raised questions about the effectiveness of the new 15-per-cent levy, pointing to the government self-admitted lack of housing data.

When asked on Friday whether the government had any evidence to suggest foreign speculators were driving up house prices in the region, Finance Minister Charles Sousa cited a survey by the Toronto Real Estate Board that suggested foreigners were involved in about five per cent of property purchases.

“Non-Canadians who are investing here are playing a role, so we’re taking that to heart,” Sousa said in an interview.

The Toronto Real Estate Board — which represents about 45,000 realtors and brokers — said its survey of 3,500 members, conducted late last year, found that 4.9 per cent of transactions in the Greater Toronto Area involved foreign buyers.

The board called that a minimal amount and not detrimental to the housing market.

“From our standpoint we feel that any public policy decision that’s pointed at the housing market should have some empirical evidence to back up the issue and from our perspective, beyond our survey we haven’t seen that,” the board’s market analysis director Jason Mercer said Friday.

Starting this week, homebuyers are required to give information about their residency and citizenship status and how they intend to use the property. Sousa said the government will now be able to assess “the degree and the impact” foreign buyers have on the market

Ontario will outline plans next week to deal with rising home prices Government not expected to implement foreign buyers tax, like B.C’s

Ontario will take steps next week to deal with rising house prices, but it will not follow British Columbia’s lead and impose a tax on foreign buyers.

Finance Minister Charles Sousa says “something has to be done” to help people deal with soaring home prices in Toronto, especially first-time buyers who find it nearly impossible to save a big enough down payment to enter the market.

But Sousa says he doesn’t want to do anything that would adversely affect real estate markets in neighbouring communities, and he wants more data on the impact of B.C.’s foreign buyer’s tax in Vancouver.

Home sales in Vancouver began to dip before the 15 per cent tax on foreign buyers was implemented in August, but those declines have accelerated since, plunging nearly 39 per cent last month compared with October 2015.

In the Greater Toronto Area, a record 9,768 properties were sold last month — up 11.5 per cent year-over-year — even as prices jumped 21 per cent from the same month in 2015.

Sousa will outline Ontario’s plan to address housing affordability in next week’s fall economic statement, but wouldn’t say if he plans to offer tax breaks to first-time buyers or take measures to help lower prices.

Ontario offers 1st-time homebuyers bigger tax break

The Ontario government is moving to double the maximum tax rebate offered to first-time homebuyers while boosting the land-transfer tax on house purchases above $2 million.

Finance Minister Charles Sousa made the announcements in his fall economic statement, delivered in the provincial legislature on Monday afternoon. The changes are to take effect on Jan.1, 2017.

“Purchasing your very first home is one of the most exciting decisions in a young person’s life, but many are worried about how they will be able to afford their first condo or house,” he told the Legislature Monday. “Improving housing affordability will help more Ontarians to participate [in the housing market].”

Sousa said first-time buyers won’t pay any land transfer tax on the first $368,000 of a purchase price, and they will become eligible for a rebate of up to $4,000 in provincial land transfer tax, levied on the purchase of every house and condominium. Meanwhile, the land-transfer tax rate on the amount of a purchase above $2 million will rise to 2.5 per cent, from the current rate of 2 per cent.

Government officials say the tax increase on luxury homes will bring in about $105 million annually, and that will fund the increased rebate.

TD Bank raises mortgage prime rate to 2.85%

TD Bank increased their prime rate for mortgages yesterday by 15bps to 2.85%.  This will only affect the clients that have variable rate mortgages.  The other banks have not followed yet, however it normally does not take long for the big 5 banks to follow one another.  Here is the news article:

TD Bank raises mortgage prime rate to 2.85%

Toronto Dominion Bank has become the first major lender to hike its mortgage rates after Ottawa’s move last month to change some of the rules that govern insured mortgages.

The bank’s mortgage prime rate is rising 0.15 points to 2.85 per cent, effective immediately, after it had remained steady for 15 months.

Only customers with variable rate mortgages will be affected, the bank said in a statement, while fixed-rate customers should see no change. Other products such as lines of credit are not affected.

“We regularly review our rates and adjust them based on a number of factors, including the cost that TD pays to fund mortgages,” the bank said. “Increasing our rates is not a decision we take lightly. We consider the impact on our customers before proceeding with any rate change, and we communicate directly with customers whose loans or mortgages are affected.”

It’s rare for the big banks to leave much gap between themselves on their prime lending rates, so other major lenders are expected to follow suit. CBC News has reached out to Royal, CIBC, Scotiabank and BMO for comment, but none was immediately available.

James Laird, a co-founder of rate-comparing website RateHub and president of mortgage brokerage Canwise Financial, says he can’t recall the last time a major bank moved its prime lending rate out of step with the Bank of Canada, which has been on the sidelines for all of this year and is next scheduled to meet next month.

“That being said, there’s been some very major changes to the mortgage industry,” he said in an interview. “This could be in anticipation of higher funding costs when the new rules come in.”

In addition to a new stress test for borrowers, Ottawa also implemented new rules set to kick in at the end of this month that will make many types of mortgages ineligible for bulk insurance — which is one of the cheapest ways for lenders to insure their loans.

That means in less than a month, many lenders won’t be able to cut their costs by packaging their mortgages together and selling them to investors. That will raise the cost of mortgages everywhere, especially for non-bank lenders.

So TD moving to raise their mortgage rates could be a way of getting out ahead of those changes, Laird said.

“Without being able to ensure those mortgages,” Laird said “we can point to that as a likely reason for today’s news.”