Without it, many consumers would have to lower their expectations
Keith Woolhouse
Sun
Scraping together the down payment on your first house or condo has been increasingly difficult in recent years because rising property prices often meant that no matter how fast a couple saved, the price of the cherished home kept creeping out of reach.
Still, as tough as it has been, the opportunity to buy into the housing market has seldom been brighter, thanks to the relaxation of stringent lending conditions.
First, the lending institutions extended the number of years over which a mortgage can be repaid to 40 years from 25. Then they introduced no-down-payment mortgages and cash-back mortgages to ease the burden of being unable to save and simultaneously pay rent.
The most sought-after assistance, however, is the default insurance program that all lenders require from homeowners unable to provide the 25 per cent minimum down payment of a property’s purchase price.
Since it introduced mortgage-loan insurance in 1954, the Canada Mortgage and Housing Corp. (CMHC) has stood as guarantor in the purchase of nine million homes. In 2005 — the latest year for which statistics are available — the national housing agency was the guarantor for 746,157 mortgage insurance premiums.
Without it, cash-strapped consumers would have had to lower their expectations or continue to chase the elusive 25 per cent down payment required by the Bank of Canada.
When buyers cannot provide this, they must have insurance approval to protect the lending institution against the possibility of defaulting on the loan. That’s when the CMHC steps in, offering to guarantee the loan and providing the lending institution risk-free protection.
“By providing the default insurance, we remove the risk from the lending institution. What we’re also doing is giving people the opportunity to purchase a home with a lower down payment,” says Mary Stergiadis, CMHC principal of business development.
The insurance guarantee does not come without a price to the borrower, but it is well worth it, she says.
“We all know that it takes a heck of a long time to save up the 25 per cent down payment and, for most couples, it can be quite a struggle, so we give them the opportunity to get into a home sooner by paying a very small one-time premium. The premium is added to their mortgage, so it is very cash-flow friendly, and it makes sense to the consumer,” said Stergiadis.
Here’s how it works:
With $50,000, a couple can buy a home of up to $200,000 without the mortgage insurance.
But if a couple has, for example, only $30,000, which represents 15 per cent on a $200,000 home, the loan must be guaranteed. CMHC’s insurance premium on the mortgage balance ($170,000) is 1.75 per cent. This requires a one-time payment of $2,975 (170,000 x 1.75), which is tacked on to the mortgage.
“Because the insurance premium is added to the mortgage, it enables Canadians to buy a home much sooner than if they had to wait on the sidelines saving up to reach that magical 25 per cent mark,” Stergiadis said.
“The mortgage insurance gets them into a home, plus lets them take advantage of today’s prices and today’s interest rates and become a homeowner and start to realize the benefits of home ownership.”
The CMHC is more than just a mortgage insurer, however. The agency has a wealth of knowledge and expertise on the housing front, plus other invaluable programs:
– The Homeowner Residential Rehabilitation Assistance Program
The Homeowner RRAP offers forgivable grants to low-income households to enable them to bring their dwellings up to a minimum level of health and safety.
Homeowners are eligible if the value of their house is below a specified figure; and their household income is at, or below, established limits based on household size and area. Properties must be lacking basic facilities or require major repair in one or more of five categories: structural, electrical, plumbing, heating and fire safety.
– Home Adaptations for Seniors‘ Independence (HASI)
This program has forgivable loans up to $3,500 for minor renovations that help low-income seniors live in their own homes independently.
Homeowners and landlords may qualify for assistance as long as the occupant of the dwelling is 65 and older, has difficulty with daily-living activities brought on by aging, total household income is at or below a specified limit and the dwelling is a permanent residence.
The renovation work should be minor items that meet the needs of seniors with an age-related disability. They could be handrails, easy-to-reach work and storage areas in the kitchen, lever handles on doors, walk-in showers with grab bars, bathtub grab bars and seats.
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CMHC publications, many of them free, include step-by-step buying guides for house and condominium buyers, seasonal home maintenance guides and fact sheets that cover many aspects of owning, maintaining and renovating a home. Readers can order online (www.cmhc.ca) or by calling 1-800-668-2642.
