CMHC continues to tweak the mortgage market in Canada.  Today they announced a slight increase in the premiums they charge on mortgages.  The increase is about 15% on average.  You can see the changes here.

This change does not affect any current CMHC insured mortgages.  It only applies to new mortgages “approved” after May 1st.  Your closing date doesn’t matter.

While 15% sounds like a lot, in the large scale of home financing, it’s not really a big change.  Here’s a little perspective on a typcial, average $300,000 mortgage in this market.

– Your monthly payment increases by about $6 per month.

– You will pay about $550 in added interest over the 25 year life of your mortage (assuming you take that long to pay it off).

– The net total cost, including the premium and interest is about $1,750.

Taking that into account, it hardly justifies rushing to find the “perfect home” before May 1st.  That home just became 0.5% more expensive.  That’s really an insignificant amount for most home buyers.  Here’s some added perspective.  Saving as little as .10% on your interest rate, saves you almost 3 times that amount.

All of those numbers are based on the higest premium level (those buyers purchasing with only 5% down).  If you’ve got 10%, or 15% down, the added cost is even more insignificant.  And if you’re buying with 20% down, today’s annoucement lifely won’t affect you at all.

So all things considered, the 2 day notice of a “big announcement”, will not have a significant effect on our housing market.

Doug Neufeld www.dougneufeld.com

By Christos Gitersos       

I’ve ran in to a couple people in the past few weeks that have taken cash back mortgages. Particularly with one bank who is promoting them heavily.

You have to be very leery of them as they may not work out as you thought.

Remember, this money is not ‘free’ money. They make it up in the mortgage rate they charge. Which is usually higher than the ‘best rates’ the market has to offer.

Also, the biggest kicker is that if you were to break your mortgage you will have to repay this money back. Which means if you had to sell your home or change your mortgage, say half way through your term, and equity was tight already, you may be having to pay money back and not have anything left.

In the most recent example I came across…The mortgage was still a couple years out and the guy had to get out of his mortgage. He had to pay back $12,000 for this cash back, which was the original amount (remember the rate he’s been paying is slightly higher too) as well his penalty to break his mortgage was about $2-3,000 higher than if he used a non bank lender. (Big banks are known by fact to have higher pay out penalties than the lenders we use. I’ve done the math a hundred times)

The moral of the story is to be very careful when thinking of cash back mortgages. Talk to an independent specialist and not just the one bank branch.

Christos Gitersos www.gitersos.com