Bank of Canada holds mortgage rate steady
The Bank of Canada has decided to hold the rate steady. Variable rate mortgages remain unchanged. 2015 could be status quo for the rate, Bank of Canada now estimates economy reaching and remaining at full capacity around the end of 2016.
CMHC and mortgage insurers increase rate premium
In early April 2015, CMHC (Canadian Mortgage and Housing Corporation) announced effective June 1, 2015, the mortgage loan insurance premiums for homebuyers with less than a 10% down payment will increase by approximately 15% . The remaining two private insurers, Genworth and Canada Guaranty, followed suit with the same announcement. This affects owner-occupied homebuyers, a vast majority being first time homebuyers. Rental property is not affected by this announcement, as the required down payment is above the 10% threshold (minimum 20%).
The mortgage insurance premium is added to the mortgage. The immediate effect is a modest increase in monthly payment, approximately $7 more per month (based 5% down payment on $350K purchase price, 2.79%, 25 year amortization). The more significant impact is the additional premium increases the mortgage, by approximately $1575 in the example previously mentioned.
This is yet another rule that hits mostly first time homebuyers ready to enter the market. Over the last several years, mortgage rules have tightened up, shutting out more prospective homebuyers. Conservative lending is important to maintain stability, however if too many consumers are shut out, the pendulum may swing a little bit the other way. For now, these are the new rules, plan accordingly and assume insurers will maintain their conservative approach.
As a consequence of the rule change, there will be a large influx of homebuyers purchasing and submitting application before the June 1st deadline. This happened in prior years when CMHC made a rule change. This means everyone applying for mortgages will be affected due to the large volumes presented to lenders and the insurers. Take note, and provide yourself enough time for processing financing and also check with your lawyer to make sure they can accommodate your closing date.
If you are planning to buy a house in Whitby, Brooklin or other areas within Durham Region, contact me. I can help you with the buying process and refer you to a mortgage specialist that can explain the products and help you choose the right mortgage product.