Mortgage insurance premiums are increasing

MORTGAGE INSURANCE PREMIUMS

ARE CHANGING

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

What you need to know

An announcement last week made by Canada Mortgage and Housing Corporation (CMHC) advised the mortgage insurance premiums will be

increasing effective May 2014.

I want to highlight how those changes will affect a potential borrower looking for new financing.

Although the updated premiums are expected to have a minimal affect on our housing market, it is still important to know the “who,

what, when and how” these changes will affect you and your mortgage.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

WHOLet’s start with “WHO” will be affected by these changes. Given mortgage

default insurance is most often required when you are purchasing a property with less than 20% downpayment, it is those borrowers who will be most

impacted by the increase in premiums. Having said that, I believe the impact of the increases should be quite minimal.

For those of you who don’t know exactly what the purpose of this insurance is, it protects the lender in the event the borrower stops paying their

mortgage. The cost of this insurance is covered by the borrower in the form of a premium that is added to the original mortgage amount requested.

The amount of this one time premium is then amortized over the life of your mortgage which is usually up to 25 years. This recent premium increase

actually has little effect on your mortgage payments.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

These new rules mostly impact borrowers purchasing a home, though will also apply if you’re refinancing and adding more

funds to your mortgage amount. Your mortgage professional can provide more details specific to your situation.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

WHEN

The new mortgage default insurance premiums are effective May 1st, 2014.

Those applications with an active offer to purchase or a refinance that are approved for insurance prior to May 1st will have the lower premiums

applied regardless of the closing date.

Be aware that the insurers do not offer “pre-approvals” so if you are concerned with the higher premiums, take action prior to the May 1st date.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

WHATThe mortgage default insurance premium is calculated as a percentage of

your total mortgage amount. The percentage applied varies based on the size and type of your down payment, as well as type of employment income being

used in your application.

This percentage charged is WHAT is actually changing with premiums increasing by an average of 15%.

Today if you were buying with a 5% downpayment, your insurance premium would be around 2.75% of your mortgage amount. With the new changes

coming into effect in May, you will now pay around 3.15% of your mortgage amount for the exact same insurance. While it is still an increase, again, the actual impact on your affordability is not that great, see the next slides for

some examples.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

HOWI’ve included a couple of potential mortgage scenarios based on a $100,000

purchase price for simplicity sake.

If you’re buying in the $200,00 range, double the numbers and if you are buying in the $300,000 range, triple it, and so on.

Alternatively, if you want more specific figures, there are many great calculators available on the web, just make sure they’re applicable to

Canadian mortgages.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

The numbers on the next few slides are based on a $100,000 purchase price with a 25-year amortization,

based on a 5-year fixed term at 3.09%*.

*5-year fixed rate available as of March 3, 2014, O.A.C. E & O.E.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

5% Downpayment

Now: $2,613 insurance premium paid with $466 monthly mortgage payments.

After May 1st: $2,993 insurance premium paid with $468 monthly payments

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

10% Downpayment

Now: $2,475 insurance premium paid with $442 monthly mortgage payments.

After May 1st: $2,835 insurance premium paid with $444 monthly payments

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

15% Downpayment

Now: $2,338 insurance premium paid with $417 monthly mortgage payments.

After May 1st: $2,688 insurance premium paid with $419 monthly payments

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

Most often, the only way to avoid paying an insurance premium is to have a downpayment higher than 20% of your purchase price.

For those with less than a 20% downpayment, there are 3 mortgage default insurers in Canada. So far 2 of the 3 have announced their premiums will increase, and I’m sure we’ll shortly see the 3rd insurer announce they are

following suit making the increased premiums the new industry norm.

In my opinion, the announcement of the new mortgage insurance premiums is minor by comparison to what could have come down the pipeline, like

increased minimum downpayment requirements or a further reduction in mortgage amortizations. The purpose of this new change is not to deter borrowers from buying; instead it should act as encouragement for any

borrower to contribute a larger downpayment of their own in order to pay less of an insurance premium.

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

Jackie Woodward // Mortgage Broker // TMGVisit: http://www.mortgagegirl.ca // Phone: 780.433.8412 // Email:

[email protected]

MORTGAGE INSURANCE PREMIUMS ARE CHANGING

Mortgage Questions?

Don’t hesitate to contact the MortgagegirlPhone: 780-433.8412Email: [email protected]: www.mortgagegirl.caLike: www.Facebook.com/mortgagegirl.caFollow @mortgagegirlca