Category Archives: CMHC

We don’t charge you mortgage insurance: CMHC – You could still pay a premium even with a 20% down-payment

CMHC and Genworth don't charge mortgage insurance fees. You're bank does (Getty Images / Oxford)

Source: Money Sense, by by May 25th, 2015

We recently got an email from a reader who was quite perturbed. He had saved his money was diligent about his budgeting, and was set to purchase a modestly priced home near Ottawa. But when he went to use the Canada Mortgage and Housing Corporation’s mortgage calculator to figure out his final costs, he was surprised to see an additional $2,500 tacked on to his mortgage. Here’s why:

Q: Every resource I’ve consulted says that a down-payment of 20% or more on a home waives any mortgage insurance premium that I would be required to pay if I were putting down less of a down-payment. However, when I use the CMHC mortgage affordability calculator, and enter a purchase price of $250,000 with a down-payment of $50,000 (20% of the home’s value), it gives me a mortgage insurance premium of $2,500 not $0. My question is why are home buyers told that a 20% or more down-payment is sufficient to avoid mortgage insurance fees, if that’s not the case? —Peeved with Premiums

Dear, Peeved with Premiums: You have a right to be concerned. Home buying is a stressful process and every dollar counts, so it would certainly come as a surprise to learn that despite saving up a 20% down-payment you’re still expected to pay a mortgage insurance premium.

But there’s good news: You won’t have to pay.

Any property purchased in Canada that has less than a 20% down-payment is required, by law, to have mortgage insurance. This insurance is to protect the lender, not you, and the fees drop as your down payment gets larger. In Canada there are currently two entities that provide lenders this insurance:Genworth and Canada Mortgage and Housing Corporation (CMHC).

But don’t be confused. The laws to purchase this insurance don’t actually impact you—they impact your lender. In other words, federal laws demand that lenders purchase this insurance from Genworth and CMHC. Federal laws don’t stipulate whether or not lenders have to pass on this cost to Canadian home buyers. That decision is up to the lender.

But before you get out the placards and set up a protest, let’s put this in perspective. A conventional mortgage is where you put 20% of your own money (or more) as collateral towards owning a home. But it’s a large purchase and 20% can be tough to save up (particularly in a hot real estate market where prices keep going up). That’s why the federal government came to an agreement with CMHC and Genworth to offer mortgage default loan insurance (the official name) to lenders who were willing to accept a less than 20% down payment when it came to a home purchase. When a borrower qualifies to purchase a home using a non-conventional or high loan-to-value mortgage, the federal law requires mortgage loan insurance and this cost is passed on to the borrower.

Simply put: It’s a fee passed on to you for the benefit of owning a home with less than 20% down.

BANKS PASS ON THE COST TO BUYERS

Still, it’s pretty much an industry standard for lenders to pass on the cost of mortgage insurance to their borrowers who put down less than a 20% down-payment.

What’s not typical is to pass on this cost if a home buyer puts down 20% or more as a down-payment on a property. But that doesn’t mean it doesn’t happen. Fact is even when you purchase a home with more than 20%, many lenders will still opt to purchase the insurance. Why? It helps defray the downside risk of mortgaging a more expensive property. Think: Toronto and Vancouver where average prices for detached urban homes reach or surpass $1 million.

But in only a few cases, will a lender decide to pass on the cost of this mortgage insurance when a borrower puts down a 20% or more as a down-payment. “It’s not typical,” says one mortgage broker, “but it can happen.”

It will only really happen if the borrower moves from the A-list (of high quality borrowers) to the B-list (riskier borrowers) and red flags for getting on the B-list include: bad credit rating, you’re self-employed or have a spotty employment history, you carry a large debt load that’s close to the threshold (to understand mortgage ratios, read my blog on the basics of debt ratios and qualifying for mortgages.)

THE MORTGAGE CALCULATOR IS NOT WRONG

Of course, none of this applies to Jon our reader. He’s been steadily employed for decades, he doesn’t carry an exceptional debt loan and the size of the mortgage on the property is not only manageable, but conservative given the current real estate market.

For that reason, I reached out to the CMHC to ask, specifically, why their calculator would include this fee. Karine LeBlanc, media relations officer with CMHC, responded:

“It is important to note that CMHC’s mortgage affordability calculator is for general illustrative purposes only. The amounts it projects are based upon assumptions and estimates made according to generally accepted principles for mortgages in Canada. CMHC cannot guarantee the projections. Actual payment amount must be obtained from a person’s lender.”

In other words: Don’t take any mortgage calculator at face value.  Talk to your lender. And if you find that your bank feels it necessary to pass on the fee, I would suggest shopping around. The mortgage business is hyper-competitive these days and finding a lender with a great rate that doesn’t pass on extraneous fees should be easy as 1-2-3.

Read more from Romana King at Home Owner on Facebook »

(Just a heads up: Mortgage insurance premium rates recently went up both at CMHC and Genworth and investors, those with vacation homes or second mortgages will want to pay attention to the different rates that Genworth applies to these types of properties.) Here’s the standard rate charts for both Genworth and CMHC.

CMHC mortgage insurance premiums

Genworth's mortgage insurance rates

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Buying a house with only 5% down

Buying a house with only 5% down (mstay/Getty Images)

Real estate is a popular investment because for a relatively small amount of money, you can own an asset worth significantly more. It’s the power of leverage and while there can be some significant drawbacks used wisely, leverage can help you build your net worth.

For first-time home buyers, this leverage opportunity translates into a chance to put only 5% down to own your home. For instance, you could purchase a condo or home for $450,000 with only $22,500 (plus transactional/closing costs).

But to use the 5% down payment option, the following rules apply:

* The home will be your principal residence—in other words, you will actually live in the home. So if you plan on buying a condo, only to rent it out, you won’t be eligible for the Canada Mortgage and Housing Corporation’s 5% down payment option.

* The actual 5% sum must be from your own funds or from a gift from a family member. You cannot use a loan or line of credit.

* You can prove to your lender that you can cover the transactional closing costs on the real estate deal. A rule of thumb is to keep 1% to 1.5% of the purchase price aside for closing costs. So, a $450,000 home will require you to put aside at least $4,500 to pay legal fees, land transfer costs, etc.

* You must have good credit and a minimum of one year with your current employer.

* The cost to pay the mortgage, your heat and hydro, the condo fees (if applicable) and property taxes cannot exceed more than 32% of your gross taxable income—this is your Gross Debt Service ratio, or the GDS. Plus, all your consumer debt, loans and housing-related payments cannot exceed 40% of your gross taxable income—this is your Total Debt Service ratio or the TDS. To learn how banks use these to qualify you for a mortgage, read my prior post.

Source: MoneySense  July 22nd, 2015

Borrowing is tougher for self-employed

Homebuyers looking for a mortgage are finding conditions are getting tougher if they are self-employed, at a time when there is an increasing number of self-employed Canadians. Solid credit scores are multiple years in business are still not making it easy for business owners to buy their own home. Chad Oyhenart, a Vancouver-based mortgage broker at Dominion Lending Centres told The Financial Post that conditions are tougher as the result of rule changes over the past 7 years: “They just want to make sure that they’re not putting Canadians into situations that they can’t get out of, so that we don’t end up being the U.S.” Jeff Mark of Spin Mortgage also sounded a supportive note for tighter regulations commenting that they were too loose in the past. He says that the self-employed may have to take larger incomes from their businesses, meaning more tax to pay, in order to qualify for mortgages.
Source: MortgageBrokerNews.ca Steve Randall | 24 Jul 2015

When it comes to credit, many consumers – particularly Millennials – don’t understand the score

Many consumers, particularly Millennials, don't understand the score

Only one in five consumers know that bad credit scores are likely to increase finance charges by more than $5,000 over time if you’re taking out a $20,000 five-year car loan, according to a new survey.

Some consumers know that they’d pay more in interest when buying a new car, if they had a lower score but they don’t understand how big the cost will be, according to the fifth annual national credit score survey released Monday by the Consumer Federation of America and VantageScore Solutions.

Credit scores are designed to help lenders calculate the risk that a given borrower will not repay a loan.

Millennials had some larger knowledge gaps than others, too.

About 27 percent of Millennials—those age 18 through 34—did not realize that a 700 credit score is usually a good credit score. That compares with 19 percent among consumers who are at least 35.

About 39 percent of Millennials surveyed did not understand that the three main credit bureaus collect information on which scores are based. That compares with 30 percent for consumers who aren’t Millennials.

The telephone survey by cellphone and landline, undertaken by ORC International from April 9 to April 12, showed that more consumers this year, compared with the previous year, did understand that the cost of an auto loan goes up with a lower credit score.

Barrett Burns, president and CEO of VantageScore Solutions, said consumers tend to be better educated about credit scores than when the surveys first began five years ago.

About 66 percent of consumers, for example, know that making payments on time, keeping credit card balances low or paid off and not opening several credit cards at once will help raise a low credit score over time or help maintain a good score. That compares with 55 percent of consumers from last year’s survey.

Stephen Brobeck, executive director for the Consumer Federation of America, said he’s hopeful that consumers will get more information about how to improve their credit score from a revamped site that has 12 questions. The site is at creditscorequiz.org.

Both Brobeck and Burns noted that it is important for consumers to shop around for loans to make sure they’re getting the best deals.

It’s also key to make sure the information on your credit report accurately reflects your payment history and borrowing habits.

A way to get a free credit report is to visit annualcreditreport.com or call 877-322-8228.

The federal Consumer Financial Protection Bureau works with consumers to help resolve complaints about credit scores and credit reports. But before filing a complaint at consumerfinance.gov/complaint, consumers are asked to file a complaint and obtain a response from the credit bureau or other company with which you are dealing.

Source: Redeyechicago.com Susan Tompor May 8, 2015

Lenders to be more consistent with prepayment penalties

Image result for images of mortgage prepayment penalties

Lenders to be more consistent with prepayment penalties

Next to slow turnaround, unclear mortgage penalties are one of the biggest concerns for many brokers – especially given how many different ways they are calculated.

“There are so many different ways lenders calculate penalties – certain lenders will use the posted rate and not the discounted rate that was offered to the client,” Narish Maharaj of Dominion Lending Centres Mortgage Mentors told MortgageBrokerNews.ca. “Others will subtract the client rate from the T BILL rate and subtract the client’s rate to determine the penalty.”

According to Mararaj, not only are certain lenders doing whatever they can to saddle clients with the largest possible penalty, it can become confusing when dealing with all the various rules.

“Trying to figure out the penalty is frustrating [from lender to lender] and many of them are creating much bigger spreads he said.
It’s a source of growing frustration for brokers, especially given the fact that so few Canadians read their mortgage documents and fully understand them.

According to a recently released study by Scotiabank, only 33 per cent Canadian homeowners admit that they have read their entire mortgage agreement. And only 27 per cent fully understood the details of their home loans.

And with 60 per cent of people who took part in the study believe prepayment privileges as the second most important factor in choosing a mortgage, just below rate.

“Buying a home is both exhilarating and stressful, which is why a meeting with a financial advisor to understand all of the terms and conditions of a mortgage agreement will ensure customers get the mortgage that is right for them,” said Scotiabank’s David Stafford, managing director of Real Estate Secured Lending of the report’s findings. “Flexible features like prepayment privileges, bi-weekly payments and the ability to port your mortgage can save customers thousands in interest and fees over the long term.”

Source: MortgageBrokerNews.ca by Justin da Rosa | 05 Jun 2015

10 Valuable Lessons for First-Time Home Buyers

10 Valuable Lessons for First-Time Home Buyers

In the summer of 2007, my wife and I purchased our first home. As a first-time home buyer, I knew we needed to spend a considerable amount of time researching our purchase. So that’s exactly what we did–we read as much as we could, educated ourselves on the local real estate market, and explored every aspect of the home buying process. But even then, we still made a few rookie mistakes.

This post originally appeared on The Simple Dollar.

Of course, it’s easy to see that now–after the fact. You know how the saying goes: “Hindsight is 20/20.” Although we are still happy with our purchase overall, there are definitely a few things I wish we would have done differently.

Valuable Lessons for First-Time Home Buyers

But you live and you learn. And in the end, that’s all anyone can do. With that said, I wanted to share some of our mistakes and other things we’ve learned since we bought our house, in case they might prove helpful to someone else going through the home buying process. Looking back on my own experience, here are some tips I’d recommend to any first-time home buyer:

1. Start Saving Right Away

The earlier you start saving for that down payment, the easier it gets. We didn’t start worrying about it until it was too late, and we had to get a mortgage for more than 80% of our home’s value. If we had been on the ball even two years earlier, we wouldn’t have had to do that.

If you want to avoid paying private mortgage insurance, or PMI, in most cases you need to save up at least 20% of your future home’s value to use as a down payment. That’s easier said than done, but it becomes a much more realistic concept if you start saving right away.

Even if you aren’t ready to buy in the foreseeable future, you can put yourself in a better position by stashing $50 or $100 per month into a new home fund. The bottom line: The sooner you start, the better.

2. Don’t Rush Things

Because of the timing of my wife’s pregnancy, we felt rushed into our home purchase. With a baby on the way, we knew our apartment would soon be exploding at the seams. Although I’m happy with our home purchase, I wish we hadn’t rushed it so much.

There are lots of factors to consider when buying a home, and you can often benefit by searching in different areas and neighborhoods before you pull the trigger. I feel as though we settled in a way, and that’s one mistake I still regret.

3. Build Your Emergency Fund

When you’re a first-time home buyer, it’s easy to be shocked by the many “extras” that appear in your monthly budget. Things that didn’t exist before–like larger utility bills, home repairs, and lawn maintenance–start adding up and making a huge difference in your bottom line.

If you want to be as prepared as possible, build your emergency fund for several months–or even years–before you commit to the home buying process. The money will be there when you need it that way, which will make the entire purchase a lot less stressful.

4. Price-Shop for a Mortgage

The easiest way to get the best mortgage rates is to shop around as much as you can. When we were going through the home buying process, I was surprised at how much lower (and higher) mortgage rates from different firms could be.

We ultimately chose the lowest rate out of three and went with our credit union. However, I really wish we would have taken the time to explore different loan options, as well as rates from at least a few more mortgage brokers. Saving just a half a percentage point on an average-priced home could lead to tens of thousands of dollars in savings over the years.

5. Pay Attention During the Home Inspection

During the home inspection process, we thought we did everything right. We followed the home inspector through every room. We asked questions. We took notes. One thing we didn’t do, however, was check things out for ourselves.

Unfortunately, in our case, our failure to explore the entire property meant that we overlooked an extremely old and almost unusable hot water heater. We’ve since replaced it, but we might have been able to ask the seller for a credit had we known at the time. The bottom line–always inspect the home on your own and pay attention to the details.

6. Get a Second (or Third) Opinion

When you’ve fallen in love with a house, it’s easy to overlook things that may not be quite right. Unfortunately, those “love blinders” can cause expensive mistakes if you fail to notice something wrong with the property.

That’s why it’s important to bring a family friend or relative along. Since they aren’t buying the property themselves, they’re more likely to see it for what it is. So get a second or third opinion from someone who isn’t blinded by love goggles. Different eyes spot different things, and friendly eyes will tell you the problems they see.

7. Shop Around for Homeowners Insurance

It can really pay off to shop around for the best homeowner’s insurance policy you can find. And don’t be afraid to move your other insurance policies and bundle them together—most insurers offer a generous discount if you package both your auto and homeowners policies, for instance.

But your search shouldn’t just be for the cheapest policy you can find; this is likely the biggest investment you’ll ever make, so you want a high-quality policy that will serve its purpose if you should ever need it. So don’t shop just on price alone–consider the quality of the policy and its coverage options. If you ever need to file a claim, you’ll be glad you did.

Another way to save some money on your homeowners insurance is to evaluate the actual value of your house’s contents, and insure them accordingly. At first, we went with a default amount suggested by our insurance agent, simply because we didn’t know any better. Later, having actually calculated the value of everything in the house, we adjusted that figure downward quite a bit. Remember, don’t count irreplaceable items–you wouldn’t replace them anyway, and they have no real replacement value.

8. Don’t Go Furniture Shopping the Day After You Move In

When you’re a first-time home buyer, it’s easy to forget that your new home will bring with it a whole new set of expenses you’ve never had to worry about before. So before you go on a furniture-shopping spree, take some time to figure out what your new budget might look like, and what you actually need for your new home.

If you take some time and shop around enough, you might even find an awesome furniture sale or liquidation, or discover some used furniture on Craigslist that suits your needs perfectly. Don’t rush into a furniture purchase. You have plenty of time, so use it.

We had a bunch of cheap furniture from our college days at our old apartment that we didn’t bring with us. By pure luck, we happened to stumble upon a liquidation sale at a furniture shop and outfitted our living room very cheaply, but it was really a mistake to decide that we needed new furniture for our new house. Upgrade it later on–you can have a few empty rooms for a while. Save up until you can afford what you actually want instead of buying furniture just to fill a room.

9. Offer to Help Others Move for Years in Advance

How does this help you? Well, imagine over a three-year period that you help 10 different families move. When you move, you can call any of these people to help you move—and five families can unload a truck and unpack boxes at an astounding rate.

Our big mistake wasn’t the help we received, but how I managed it. Don’t have everyone come and help you at once. Ask two friends to come one day and two friends to come another day instead of having them all come at once—you’ll be far more productive that way.

10. Know What You Can Change, and What You Can’t

When you buy your first home, the whole process feels daunting. The idea of spending thousands of dollars to replace or update old or unsafe systems or outdated appliances is especially unsettling and can seem like an insurmountable obstacle.

But every home has some issues. Some of them are things you can live with, while some are things you can’t; some are things you can change, and some are permanent features.

The number-one thing you can’t change about a house is its location, so remember: When you buy a home, you’re not just buying a house, you’re buying the neighborhood. Explore the surrounding area before you submit an offer and fully commit to the purchase.

Meanwhile, other problems can be fixed, or at least endured until you are able to fix them. For example, that problematic hot water heater was something we could change about the house. But if we had let that issue scare us away from buying it, we might have missed out on the chance to live in a family-oriented community with great neighbors.

More Tips to Improve the Home Buying Process

Your home will probably be the most expensive purchase you ever make. That’s why it’s important to research every aspect of the home buying process–and make sure you do things right from the start.

Part of that process involves getting your own financial house in order. Here are some steps you should consider taking as you prepare your finances for the prospect of a mortgage:

Make Sure Your Credit Is in Good Shape

If you want to qualify for the best mortgage rates possible, it’s essential that you get your credit score in tip-top shape. If your credit score needs work, there are plenty of steps you can take to improve it. Some of them include paying down debt, diversifying the types of credit you use, and paying your bills on time, every time.

Pay Down Your Debts

Not only can paying down debt improve your credit score, it can increase your chances of getting qualified for a mortgage—and improve your financial well-being, too. Once you owe less money, you should have more expendable income each month that you could save for your new home’s down payment—or for repairs or upgrades once you move in.

Paying down your debts can also help you qualify for a mortgage, since lenders prefer to have your total debt obligations—including your new mortgage—to represent no more than 43% of your income.

Avoid New Debts

Another piece of the puzzle while you’re preparing for a mortgage is staying away from new debts. Remember, any monthly obligations you have could stand in the way of taking out a mortgage for the home you really want to buy. As you prepare to buy a new home, try to stay away from taking out any new loans, including car loans. You’ll be in a much better place to get your ideal mortgage, and ideal mortgage terms, if you are debt-free.

Resist the Urge to Buy All the Home You Can ‘Afford’

This one is really important. When you first apply for a mortgage, the bank may be willing to lend you more than you really need. However, there are a lot of really good arguments in favor of buying less house than you can afford.

For example, the lower payments that come with having a smaller mortgage can be beneficial when you’re getting ready to start a family or saving for retirement. Meanwhile, a smaller home can mean less money needed for repairs, utilities, and upkeep.

Regardless, you should only buy as much home as you need and only spend as much as you’re comfortable with. Who cares what the bank says you can afford?

As intimidating as it can be, buying your first home is a wonderful, exciting experience — especially if you educate yourself about the process beforehand. Do the readers have any more suggestions for things they’d do differently with their first home purchase?

10 Tips for First-Time Home Buyers | The Simple Dollar


Trent Hamm is a personal finance writer at TheSimpleDollar.com. After pulling himself out of his own financial crisis, he founded the site in late 2006 to help others through financially difficult situations; today the site has become a finance, insurance, and retirement resource. Contact Trent at trent AT the simple dollar DOT com; please send site inquiries to inquiries AT the simple dollar DOT com.

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Broker: Insurers are now tighter than lenders

It’s hard enough getting certain clients approved by lenders, and now brokers are having to deal with more conservative mortgage insurers as well.

“I did a number of files [last] week where the lenders wanted them approved but the insurers wouldn’t insure them,” Morris Briglio of Verico The Mortgage Advantage told MortgageBrokerNews.ca. “The insurers aren’t listening to the lenders.”

According to Briglio, he has noticed this sort of pushback from the mortgage default insurers since 2011, but that they have become stricter recently. He believes the B-20 rules are partly to blame.

“CMHC and the private insurers are the ones dictating policies to lenders which shouldn’t be the case because the lenders know how to [underwrite],” he said. “We might as well send applications straight to the insurers; it’s no longer the lenders who have the power.”

According to one broker, this is becoming increasingly common in specific areas.

“It’s a moving target at all times,” Jeff Attwooll of Verico K-W Mortgage Inc. told MortgageBrokerNews.ca. “Insurers in Alberta are looking at deals in a Microscope.”

Indeed, at least one mortgage default insurer has already admitted it has tightened its underwriting in the oil-rich province.

“We haven’t pulled out of the market by any means,” Levings told an investor conference hosted by National Bank in late March. “What we’re doing is we’re looking at the stacked risk factors a lot closer — so people that have higher debt service ratios, that are employed in the oil and gas sector, that may be dependent on one income versus two, that are buying a home with five per cent down — we’re going to take a lot closer look at that deal.”

Still, Briglio – a B.C.-based broker – is noticing the trend outside Alberta.

And even Attwooll, whose business is in Ontario, is encountering similar problems.

“I’m hearing from lenders that insurers are being a lot pickier,” he said.

Source: MortgageBrokerNews.ca
by Justin da Rosa | 02 Jun 2015