Doubtful New CMHC Insurance Rates Will Dampen Demand

Mortgage insurance may cost more, but that likely won’t have a major impact on demand.

On March 17, CMHC officially began charging homeowners a higher percentage of their mortgage’s value in order to insure it. The rates differ depending on the mortgage amount and the amount of equity the owner has in the property.

For many years, buyers who made down payments of less than 20 per cent of the purchase price of their home have been legally required to pay mortgage insurance. It’s a way to protect the mortgage lender in the event the homeowner defaults on the loan.

But CMHC says its third increase in mortgage insurance in a four-year period is not targeting new home buyers, many of whom are feeling the effects of other changes, including a stress test designed to ensure they can continue to pay their mortgages as rates rise and an increase in both mortgage rates and home prices in some markets.

In fact, few new buyers are likely to be discouraged by CMHC’s recent increase: it’s relatively small.

And those home buyers with smaller down payments will pay less than those with larger down payments (who are paying higher home prices).

According to a recent article in the Globe and Mail, a buyer with a 5% down payment on a $150,000 mortgage will pay an increase of approximately $2.82 more per month.

For a buyer with a 15% down payment on an $850,000 mortgage, premiums will increase by almost $40 more per month.

Improvements That Increase Your Home’s Value

We Canadians spend upwards of $71 billion improving our homes. That’s more than $5,000 per household. And there’s no sign this is going to change anytime soon.

This year, if you’re looking to increase the value of your home but are unsure what home improvements to make, think curb appeal. According to a recent report from Remodeling magazine, curb appeal projects, such as changes to windows, siding and doors, lead to a higher return on investment (ROI) than interior improvements. It supports the generally held opinion that today’s home buyers, while still enthusiastic about the bells and whistles, want to ensure their home is structurally sound with all systems functioning efficiently.

The Appraisal Institute of Canada agrees: The top five renovations associated with maintaining the value of your home are replacing roofing; updating the HVAC system; replacing windows and doors; updating electrical panels, wiring, sockets and fixtures; and making structural repairs.

In its 2017 Cost vs. Value Report, Remodeling compares the average cost of current improvement projects with their value at resale, based on the experience of real estate professionals.

The projects chosen include a basement remodel, an entry door that was replaced with 20 gauge steel and the addition of stone veneer. All of the 29 projects tracked returned on average 64.3 cents per dollar spent.

Among the trends, the higher return of curb appeal projects and of projects that required the replacing of windows, doors, etc. Replacement projects generally scored higher than renovation projects; the ROI of replacement totalled 74% and of renos was 63.7%.

Those who want to tackle an interior project might do well to consider a basement renovation, providing it’s done well; a high-end basement reno was perceived as high value, returning 7.4% more than the same project last year, while a mid-range basement improvement project only increased in value by 3.3% over the previous year.