What is the CHMC and How Can it Affect Me?

Tuesday Jul 23rd, 2019

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  • Was created by Parliament in 1946 to provide low-cost housing and affordable mortgages to World War II veterans returning home after the war.
     
  • It is owned by the Canadian government; however it operates like a private sector corporation. It is accountable to Parliament through the Minister of Families, Children and Social Development.
     
  • The CMHC is a division of the Government of Canada that acts as Canada's national housing agency. 1
     
  • Its mandate is to help Canadians access a variety of affordable housing options. It also researches housing and real estate trends in Canada and around the world, providing research to consumers, businesses and other government divisions.2
     
  • CMHC’s primary activity is mortgage loan insurance, which insures approved lenders, such as Canada's chartered banks, against borrower default. 3
 
When buying a home, the buyer is normally required to place a 20% down payment. If this is not possible the buyer would not normally qualify for a mortgage. It is feared that a buyer providing less than 20% down payment will not be able to pay off their mortgage and in time will default on the mortgage. Since the home is collateral, the lender would take possession of the home and sell it to re-coup the loaned amount. Depending on the selling price, this could prove a loss for the lender.
 
This is where CHMC comes in. It provides the lender insurance in case the buyer cannot pay the mortgage. Which, in turn, allows the lender to offer a lower down payment option.

Therefore, mortgage insurance is mandatory when the down payment is less than 20% of the value of the home. This helps buyers that would normally not qualify for a mortgage own a home. This affects more first time buyers since the selling price of the last home is placed on the new home as a down payment.
 
The premium for mortgage insurance ranges from 1.80% - 3.15% of the mortgage amount depending on the down payment. This amount is added to your mortgage amount.
 
Note: Please seek guidance from a financial advisor or mortgage broker to discuss alternatives available to reduce the percentage or eliminate the need for insurance.4
 
 
A new proposed First Time Home Buyer Incentive (FTHBI) program announced in the recent Federal Budge is coming under fire. Summary:
 
  • Applies to first time buyers only
  • The buyer would still need to put at least 5% down
  • CMHC will lend buyers up to 5% interest-free on the purchase of a resale home or a up to 10% on a new home to increase their down-payment.
  • The loan comes in the form of a shared-equity mortgage with CMHC
  • Household income must be under $120,000
  • Total borrowing limit is 4 times the qualifying income Ex: $120,000 x 4 = $480,000
  • Therefore, it applies to a house price of up to $505,000 assuming 5% down
  • There are no additional monthly payments
 
What is feared is the shared-equity mortgage with CMHC.
Peter Mazzuchin, Broker, Investor, author, and Actus REG gives his opinion of the program in the video below.
 
Peter is referring to Andre Persaud, Mortgage Agent, SAFERIDGE Financial Group.

Andre Persaud's Tip of the Week:
 
A lot of people have been asking me about this CMHC loan for first time buyers.  I want to make it clear that this is just a proposed action by the Government. It is not actually something that is in place. The media is putting it out there as if this is a fact that it’s going to happen, but this is not the case. 
 
Personally, I don’t think it’s going to happen, but we will see. My bigger hope is to see if the stress test gets adjusted.
 
My main point here is that this should not impact the decisions of your buyers right now.
 

 

Sources:

1,2,3 https://www.investopedia.com/terms/c/cmhc.asp

4 https://www.reco.on.ca/ask-joe-question/what-is-cmhc-and-what-does-it-have-to-do-with-my-mortgage/


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