Thinking of buying a new home soon?
Do you, like many buyers, have a down payment of less than 10 per cent for a home in your price range?
If you act soon, you could avoid the coming mortgage insurance hike that was announced recently by Canada Mortgage and Housing Corporation (CMHC). By acting before June 1, you could save $300 on a five-year mortgage term.
Of course, $300 is not a reason to panic or rush into finding and buying a home if you don’t feel ready, but it’s always good for buyers to be aware of potential savings.
In early April, CMHC announced that it will be increasing its homeowner mortgage loan insurance premiums for homebuyers who have less than a 10% as a down payment. Effective June 1, 2015, the mortgage loan insurance premiums for those homebuyers will increase by approximately 15%.
For average Canadian homebuyers who have less than a 10% down payment, the CMHC says the higher premium will result in an increase of approximately $5 to their monthly mortgage payments. That would add up to $60 a year, or $300 over a five-year mortgage term. CMHC says 56.8% of CMHC-insured borrowers put down less than 10% on their purchases
The new premium rates will be effective for new mortgage loan insurance requests submitted on or after June 1, 2015. The current mortgage loan insurance premiums will apply for applications submitted to CMHC before June 1, 2015, regardless of the closing date.
In other words, it means that you can avoid the increase if you submit your mortgage application now. So if you’ve been thinking seriously of entering the market, acting now could save you some money.
“Even if your closing date is, say, the middle of August, as long as your loan is approved by June 1, you will be paying the old rates,” says George Hartsgrove, an Ottawa mortgage agent with Mortgage Alliance. I refer many of my buyer clients who are looking for a mortgage to George. He works with multiple lenders, and can shop around for the best possible rates, saving you the work of having to compare rates yourself.
A premium hike of about $5 a month isn’t going to have a huge impact on the market, but if you’re already thinking of applying and can act soon, then you can save those extra costs by applying for your mortgage now.
Another reason to enter the market, and a big reason that many first-time buyers have told me has prompted them to buy a home, is the low interest rate that Canadian homebuyers have enjoyed for several years now.
“There’s absolutely no question that now is a good time to buy,” says George.
George gets updates daily from his lenders. But as of this writing in early April, George says one lender was recently offering a special rate of 2.59% for a five-year fixed rate. He has seen a 10-year fixed rate offered at 3.84%, and variable rates offered at 2.15%. Those rates can change, but it helps give you an idea of what’s been available lately.
Whether people choose a fixed or variable rate is an individual decision that buyers have to make themselves, George says.
“Some people don’t like the uncertainty of a variable rate, but for those people who are willing to take a small bit of a chance, interest rates would have to rise by at least half a per cent before buyers are not at an advantage by taking a variable rate. It comes down to an individual decision, but 80% of the time, over history, it has been advantageous to take a variable rate,” George says.
As George explains, when you get a pre-approval for a mortgage, you are also guaranteed that rate with most lenders for 120 days, if rates happen to increase during that time. If rates go down during your pre-approval period, you will get the lower rate, in most cases.
So if you’ve been considering entering the market and are looking for a new home, now is a great time to act. If you’d like to reach me to chat about what you’re looking for, you can contact me through my website, at nancybenson.com, or by calling my office at 613-788-2556.
George Hartsgrove, mortgage agent with Mortgage Alliance, can be reached at 613-748-3838, ext. 228.