Earlier this year, Canada Mortgage and Housing Corporation (CMHC) announced its plan to increase homeowner mortgage loan insurance premiums that just came into effect last week. CMHC introduced new insurance premiums that took effect on March 17, 2017, to reflect OSFI’s new capital requirements. Office of the Superintendent of Financial Institutions is an independent agency of the Government of Canada reporting to the Minister of Finance. When announcing the changes, CMHC indicated that it didn’t expect any significant impact by the new rates on the ability of Canadians to buy a home. For the average CMHC-insured homebuyer, the changes will increase their monthly mortgage payment by approximately $5. The aim of the changes is to contribute to financial stability while preserving competition in the mortgage loan insurance industry.
There have been reports on the likelihood of policy intervention by different levels of government to address the risks in the real estate market. Everyone is wondering if there’s anything that can cool down the country’s red-hot property market. Well, a recent precedent has already been set when the provincial government of Vancouver applied a 15 percent tax on foreign home buyers. The move in Vancouver has noticeably slowed the region’s real estate market, causing it to drop by 37 percent.
Looking at the Vancouver experience, it’s clear that local policy restriction has significant cooling effects on housing markets. The biggest concern is whether similar policy intervention could help cool down demand for first-time homebuyers across the country. Affordability conditions continue to be stretched by sales activity in the Greater Toronto and Vancouver housing markets. Note that these are not only the most expensive housing markets but also the tightest and most active across the country.
As the country’s authority on housing, CMHC plays a significant role in stabilizing the financial system and the housing market. The calculations of the new rates are done based on the loan-to-value ratio of the mortgage that’s being insured. How does it work? Although premium payments can be done in a single lump sum, the insurer usually adds the premium amount to the mortgage principal and allows one to repay as part of regular mortgage payments. Basically, when the loan amount is large, the rate changes will be lower.
According to the new mortgage lending rules, which were announced on October 3, 2016, all insured mortgages are required to pass the mortgage stress test.
With the new measures and shifting conditions in Canada’s real estate market, there’s much to be expected. It is important for existing homeowners to position themselves well and ensure they have enough equity in their home. The shifting conditions might result in price declines, who knows? It’s time you positioned yourself to ride out the uncertainties in the Canadian real estate market. You don’t need to wait expecting the market to stabilize before getting a mortgage. Carolyn Maycock & Margaret Mots have years of industry knowledge and can provide you with the best advice. Contact now.