CMHC New Mortgage Regulations

OTTAWA, June 28, 2006 — Until now CMHC has charged application fees as well as insurance premiums. CMHC is again reducing the cost of homeownership, by eliminating application fees on all high-ratio homeowner mortgage loan insurance products. This results in the reduction in costs of typically $165, but up to $235 depending on the type of insurance transaction.

Combined with the insurance premium reductions of the last three years, which reduced premium costs by up to 30 per cent, the elimination of homeowner high-ratio application fees demonstrates our continuing commitment to keep homeownership affordable for Canadians.

Interest-Only Homeownership Product
CMHC's new interest-only homeowner product is designed to allow lenders to provide borrowers with more flexibility in repayment options. Borrowers with a proven history of managing their credit can choose to make interest-only payments for up to the first 10 years of their mortgage. CMHC will qualify the borrower based on debt servicing criteria used for amortizing mortgages. The premium surcharge for an interest-only period of five years is 0.25 per cent and 0.50 per cent for 10 years. 

This repayment option offers borrowers greater flexibility in managing their cash flow during the first 10 years of their mortgage. After the interest-only period, the balance will amortize in the same manner as other mortgage loans. Principal and interest payments will begin and will be sufficient to ensure the balance is paid in full within 25 years of the date the mortgage was originally initiated.

Examples of borrowers who would benefit might include young people who have a good credit history, but who may prefer more cash flow flexibility with some of the up-front, one-time expenses associated with the purchase of their first home.

Extended Homeowner Amortization Periods
CMHC introduced to the Canadian marketplace insurance on extended amortization periods of up to 30 years on a pilot basis earlier this year. The pilot was a great success and has helped improve access for a significant number of Canadians. CMHC announced today that its 30-year amortization offer is now an ongoing product feature. In addition, CMHC is introducing extended amortization periods of up to 35 years. For example, if a borrower were to purchase a $200,000 home, with a five-per-cent down payment, the mortgage would be $190,000. With a 25-year amortizing mortgage and assuming a six-per-cent interest rate over the full 25 years, the borrower's monthly mortgage payment would be approximately $1,215. Monthly payments for a 30-year amortization would be $1,130, and monthly payments for a 35-year amortization would be $1,075. 

The following table illustrates how extending amortization periods affect monthly payments (assuming a six per cent interest rate).

*Amounts shown in the total interest column assume that the borrower uses the full amortization period to pay off the mortgage. However, historically, most borrowers will eventually prepay their mortgage and reduce the actual amortization period including, for example, by making bi-weekly payments or increasing their monthly payment amount.

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