Planning to buy with less than 20%? You’ll need default insurance

We’re all looking to save a little money – every little bit helps. If you’re planning to buy with less than 20% down, you have to get mortgage default insurance, because your mortgage is considered a high ratio mortgage. The insurance provides protection for the lender in the case of a default. Canada’s biggest insurer of mortgages, CMHC, recently announced that their premiums are increasing for the third time in as many years, and Sagen and Canada Guaranty, Canada’s other two insurers, immediately followed suit. The increase takes effect March 17, so if you’re planning to buy soon, that’s the date to beat.

How will it hit your wallet?

The increase is not too significant for those making the minimum downpayment required. A homebuyer with a $250,000 mortgage and a 5 per cent downpayment will only pay about $5 per month more in insurance premiums. I can calculate exactly how much the increase will mean to you if you get your mortgage approval on or after March 17.

The increases are actually more substantial for larger downpayments of 15 per cent or more. Those with 20 per cent or more downpayment aren’t required to have mortgage insurance, although it’s used by lenders that securitize their mortgages. As a result, any increased cost will likely be passed on to customers through higher rates.

Premiums are also increasing for “non-traditional” insured mortgages i.e. home buyers with borrowed downpayments, a type of mortgage downpayment that could grow in popularity as homebuyers strive to gain entry in the housing market.

The premium change will come into effect on March 17. Homebuyers will be able to access the current lower rates if they have bought a home and are approved before the March 17 deadline, even if they have a later closing date. If you are looking to buy, get in touch today!

90-day RRSP downpayment boost for first-time buyers!

Act before March 1 to boost your down payment. If you’re buying your first home, the Federal Home Buyers’ Program (HBP), and a tax refund can boost the funds you have available. The HBP allows you to borrow from your RRSP for a down payment. Make as big an RRSP contribution as you can before the March 1 contribution deadline for the 2016 tax year – up to your contribution limit or the maximum $25,000 per person.

Use your downpayment savings if you can because you want as big a 2016 refund as possible. After 90 days you can redeem your contribution under the HBP program, giving you your original downpayment funds back PLUS a nice fat tax refund. You’ll need to pay the withdrawn funds back on a repayment plan, but this strategy can make a substantial difference in the affordability of home ownership! You can also check out my posts about  other first-time homebuyer programs.

Looking to catch up on previous mortgage newsletter issues?

For the full set of previous issues of Your Home and Mortgage, check out my blog here.

And don’t hesitate to contact me if you have any questions or want to explore how these changes impact you. I’m happy to help.

Photo [c] Sorasak Khwanthong for vecteezy.com