Today CMHC (Canadian Mortgage and Housing Corporation) an agency of the Canadian Government announced that they will be increasing their fees by over 10% in some cases on March 17th, 2017.
I would like to shed some light on the full situation and show you, in a round about way, why this is an increased tax to everyone with less than 20% down on a house. That is correct, this only affects the people who have not been fortunate enough to save a large down payment.
What is the increase?
This is not the first increase. CMHC will have increased its fees 3 times in the last 34 months, raising it more the 45% for those with 5% down.
As you can see the current increase is across the board. The good news is that people wealthy enough to put 20% down can usually opt out of paying any CMHC insurance.
What will this cost you?
Thank you CMHC for this breakdown in your report, and breaking it down to the lowest common denominator to show us how little it will cost us (Someone really needs to create a sarcasm font).
As you can see, CMHC tries to soften the blow by showing the effect in a monthly payment. For example they said a $350,000 mortgage with 5% down will only cost you $6.59/mth instead of telling us we are going to pay an extra $1,977 over the full amortization of the mortgage. It feels very similar to how car salesmen say “you can drive this car away right now for only $200/mth” without explaining the full ramifications!!
Why are they doing this?
OSFI (The Office of the Superintendent of Financial Institutions) another agency of the government says that it requires the mortgage insurers (CMHC included) to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure long term stability of the financial system.
CMHC recently did some stress test that included a US style housing correction, a major earthquake in a Canadian city, and oil prices dropping and staying between $20-$30 for the next 4 years. CMHC was able to withstand all of these.
In one case a CMHC test involved a “severe and prolonged” economic depression, which CMHC said would see house prices drop 25 per cent and unemployment rise to 13.5 per cent. The insurer said it would incur $3.12 billion in losses in that case.
How could CMHC afford losses?
CMHC is not a non profit organization. Here is the profit they reported over the last 5 years.
2015 – $1.4 Billion, 2014 – $2.6 Billion, 2013 – $1.8 Billion, 2012 – $1.7 Billion, 2011 – $1.5 Billion.
That is a total of $9 billion in profit over the last 5 years.
If they took a third of that profit and put it into a “rainy day” fund they would have enough to cover the future potential losses in a worse case scenario.
Why would CMHC not hold back money?
CMHC’s profit goes straight into government revenue. Do you know what else goes straight into government revenue…..taxes. Effectively CMHC is another form of tax for the government.
This is a quote directly from CMHC’s website:
“Over the past decade, CMHC has provided $21 billion toward improving the government’s fiscal position”.
So instead of holding an additional reserve with the profit the government is effectively raising the CMHC tax.
So you’re saying…….
After all of that I am saying that a decision by a government agency (OSFI) is forcing another government agency (CMHC) to increase their fees. These fee increases will create addition profit for CMHC which will go striaght into the government coffers.
You just got a tax increase.
By Referral Mortgage Consultants*
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Dave 604 897 2741 Jordi 604 615 1312 www.ChilliwackMortgageBroker.com
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*By Referral Mortgage Consultants – doing business as BRMC is: Verico Preferred Financing Inc / Verico Canadian 1st Mortgage Corp which have a co-brokering agreement and there is a common Mortgage relationship and are licensed with the Verico Dreyer Group. Mortgage ownership, that employees of both Mortgage companies may review, advise and help process the Mortgage files. That Verico Preferred Financing Inc & Verico Canadian 1st Mortgage Corp share the some expense and income from mortgages. Kim Langille Featured on thess site is an unlicensed mortgage assistant only, not a Mortgage Consultant. Jordi Browne featured on this site is the Mortgage Broker of record. “The Broker” is Jordi Browne. Jordi Browne also holds a Life Insurance License and represents Verico Canadian 1st Mortgage Corp. Dave Browne featured on this site has a Life Insurance License too but is an independent agent– Jordi and Dave Browne co-broker life insurance files and share expenses, all income retained by Verico Canadian 1st Mortgage Corp.