Friday, 20 October 2017

Are Federal Housing Improvements Enough?

Written by Posted On Tuesday, 16 September 2003 00:00

Elections are in the news across Canada so Canadians know politicians are more attentive to constituents than they have been in a while. For those actively promoting affordable housing, this is a great time to re-evaluate municipal, provincial and federal housing "report cards" and provide leadership where improvement is long over due.

Here are a few "achievements" from Canada's federal housing agency, Canada Mortgage and Housing Corporation (CMHC), a group that should be a trend-setter for housing authorities at all levels of government. It's up to you to evaluate the impact of these recently-announced improvements:

  • CMHC Reduces Homeowner Mortgage Insurance Premiums "CMHC is making homeownership more affordable through a 15 per cent reduction in homeowner premiums for mortgage loan insurance." CMHC mortgage insurance has helped one in three Canadians buy their homes, in most cases, their first home. Mortgage insurance protects the lender against payment default by the home buyer. It is required by most lenders if the home buyer has less than 25 per cent of the purchase price as a down payment. By providing mortgage loan insurance to lenders, CMHC enables home buyers to finance up to 95 per cent of the purchase price of a home.

    On a mortgage of $100,000, this represents a reduction of $500 based on a five per cent down payment.

    The premium for mortgage loan insurance is based on the amount of the loan in relation to the value of the home. The premium may be paid in cash or added to the mortgage.

    The following are the new premiums:

    Loan Amount as a % of value of the homePremium on total Loan Prior to July 14, 2003Premium on total Loan Effective July 14, 2003
    Up to and including 65%0.50%0.50%
    Up to and including 75%0.75%0.65%
    Up to and including 80%1.25%1.00%
    Up to and including 85%2.00%1.75%
    Up to and including 90%2.50%2.00%
    Up to and including 95%3.75%3.25%

    For more on how mortgage insurance works for you, read PJ's column "Canadians: Five Percent Will Buy You a Home!"

  • Through emili, CMHC passes on benefits to Canadians in the form of lower premiums, and more affordable homeownership. CMHC's online insurance risking system, emili, makes the application process for mortgage loan insurance faster and the risk assessment of the application more precise.

    "CMHC leads the market in using technology to improve client service and the efficiencies of its operations. In 1996, CMHC introduced emili, an automated insurance risking system that makes the application process for mortgage loan insurance faster and the risk assessment of the application more precise. Through innovations such as emili, and the experience we have gained through its use, we are now in a position to pass on the benefits to Canadians through reduced homeowner mortgage insurance premiums," said Karen Kinsley, President of CMHC. "In addition to making home ownership more affordable, CMHC offers a wide range of new and innovative mortgage insurance products and services that meet the changing needs and lifestyles of Canadians."

  • CMHC to Introduce Variable Rate Mortgage-Backed Securities "Variable Rate Mortgage-Backed Securities (VRMBS), Canada Mortgage and Housing Corporation's (CMHC) newest housing finance initiative to improve the supply of low-cost mortgage funds in Canada, will be introduced in September", says Karen Kinsley, CMHC President.

    "Canadian home buyers will benefit because the VRMBS will provide the mortgage market with an additional competitive source of funds which will help lower mortgage financing costs," added Ms. Kinsley.

    The introduction of VRMBS will allow Canadian financial institutions to pool variable rate mortgages into Mortgage-Backed Securities for the first time. This will facilitate the funding of variable rate mortgages which represent a large proportion of the Canadian mortgage market. Once pooled into VRMBS, they may be sold to the Canada Housing Trust for purposes of issuing Canada Mortgage Bonds.

    For more on how Mortgage-back Securities may work for you, read PJ's column "Canadian Mortgage Market to Top C$500 Billion, Favoring Mortgage-backed Securities" .

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    PJ Wade

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