CMHC Changes
Monday, April 28th, 2014
As of May 1, CMHC – the Crown Corporation that insures homes purchased with less than a 20 percent down payment – will be raising its rates; a chart breaking down the new premiums is available here. This is a not-particularly surprising move, as the rising average home prices in Canada are increasing CMHC’s exposure to risk, which is not something an insurer likes to see happen.
And now a new announcement: self-employed workers without a means for third-party validation of their income will no longer be eligible for CMHC coverage.
While some first-time homebuyers, the group traditionally unable to come up with a 20 percent down-payment, may be discouraged by this news, it’s not at all a bad thing for the real estate market; indeed, it’s a step to help things stay healthy. As interest rates look to remain low for at least the next couple of years, it can be tempting for people to over-extend themselves financially with the hope that their property’s equity will grow fast enough to make the stretch worthwhile. CMHC’s job is to make sure mortgage lenders don’t end up on the hook for a bunch of homes their owners couldn’t actually afford, and it doesn’t have an endless pool of cash from which to draw to do this. Tightening up the rules a bit can help gently nudge potential homebuyers toward gaining a little more financial security prior to signing on the dotted line, which means a healthier market all around. Foreclosures aren’t good for anyone, and neither is CMHC having to drastically increase its premiums to cover a large amount of losses. Mild corrections like this one are just a way to keep people living relatively within their means, and I’m for it.
