CMHC Announces an Announcement **Edit: CMHC increases insurance premiums

[GP_Matt]

Originally Posted by WinnipegFan

Q I have to disagree with you. The less you put down the more the mortgage calculates into the cumulative interest, which is the majority of what you are paying for the first few years of that mortgage. I highly doubt you will get a return on the small percentages of money in comparison to the cost of borrowing it. My advice to all my friends and family is to suffer through and save up 35% down and do a secure line of credit. Then your interest is calculated monthly, you aren't front loading your interest and you are paying off your principal far faster.

I have heard this a few times and am almost certain that it is not right.
Mortgages are not front end loaded, they look that way because you pay the most interest in the first month but that is because you are paying interest on the entire balance which goes down every month for approximately 300 months. After each month the balance is slightly smaller so the interest portion of the payment is smaller. With a fixed payment that means that the principle portion for the next month is slightly larger so as the years go on you are paying more and more principle and less and less interest.
That doesn't mean that it is front end loaded though.

[opendoor]

Originally Posted by pylon

I disagree.

With mortgages at all time lows, and 5 year fixed rates of 2.99% all over the place, why not borrow every nickel you can, and invest instead.

That's fine if the risk is solely on the borrower, but these are government backed loans that banks likely wouldn't give out otherwise. If someone can convince a bank to loan them 95% of the purchase price of a house without government insurance, have at it. But as long as we're all backing that mortgage, I don't think it's unreasonable that there are more stringent rules.

[albertGQ]

Originally Posted by GP_Matt

I have heard this a few times and am almost certain that it is not right.
Mortgages are not front end loaded, they look that way because you pay the most interest in the first month but that is because you are paying interest on the entire balance which goes down every month for approximately 300 months. After each month the balance is slightly smaller so the interest portion of the payment is smaller. With a fixed payment that means that the principle portion for the next month is slightly larger so as the years go on you are paying more and more principle and less and less interest.
That doesn't mean that it is front end loaded though.

I think some lenders set up their mortgages where the interest is compounded semi-annually. I beleive ATB did that. Not sure if they still do or not.

[albertGQ]

Originally Posted by Realtor 1

Condos - they had concerns with a downtown condo that had great financials and the building had plans to update much of the building. Insurers were concerned about potential future special assessments and also didnt like that windows and doors were the owners responsibility. My condo document review specialist has her office in the building...I think she has a pretty good grip on whats going on. One insurer was willing to lend however I felt it was best for the client to walk for re sale purposes.
The other was a building which had a SA a couple years ago to repair the parking garage. All repairs are done and fully paid for and the board is now trying to go after those who initially made the mistake. CMHC hears the word lawsuit and they get paranoid despite the fact it was not against the board.
It can be frustrating when you have proof that there is no concern and they don't bother reviewing the situation until enough people have brought it to their attention.

Yeah. Condos can be a nightmare.

Thanks for the info

[return to the red]

There is no right or wrong answer when it comes to the debate of 5% or 10% down, put money into investments or pay down mortgage quicker question.

It's a very personal decision and for myself I was raised on the idea that your debt gets paid off first. Works for me, might not work for you. I have friends who take all their equity out of their houses and invest it...doesn't work for me but who am I to judge them for doing it.

[I-Hate-Hulse]

Originally Posted by Realtor 1

Buy property based on value and not falling in love with 5% down. Live for a year and you are real close to having 20% equity in payments and appreciation. Move on and buy another based on the same criteria. You only need 5% again. Ffwd to today and you could have a few properties in your portfolio before the age of 30. Not a bad start to retirement.

Of course you could have saved up for 20% on the first property but the extra time it took to develop that 20% would set most people behind the ball.

Yeah but that assumes that:

1) Interest rates don't rise
2) Property values go upwards, not downwards.
3) Economy stays good enough that finding good tenants will not be a problem.

If these 3 things crater, a cash strapped guy is FUBAR. Over levered in debt as they can't service debt payments.

Better they leave a of margin of error in their budgeting. Doesn't mean they need to put 10% down vs 5%, but they really ought to factor in 6-8 months of not having rental income. Or if rates increase by 1%. Or if there's a 10% special assessment.

[Hugh Jahrmes]

I was a total newb investor two years ago when I bought my house. I made sure to have the 10% down because it lowered CMHC fees drastically. However, my rrsps which made up most of my down payment were sitting in my banks useless rate riser 1.1% or whatever account and my tfsa was basically in the same boat (1.7 or whatever bank rate at the time was).

Knowing what I do now, I probably would have invested the difference. However , with accelerated payments I will be above the 20% mark by the end of my 4th year and most likely leverage some equity for investments at that point.

[GP_Matt]

If you are still below 80% equity when you renew are you still required to pay CMHC fees?

[Hot_Flatus]

Originally Posted by GP_Matt

If you are still below 80% equity when you renew are you still required to pay CMHC fees?

No its a one time premium.

[Hot_Flatus]

Originally Posted by pylon

I disagree.

With mortgages at all time lows, and 5 year fixed rates of 2.99% all over the place, why not borrow every nickel you can, and invest instead.

I wouldn't want to be relying much on those nickels in that circumstance....

[Hugh Jahrmes]

Originally Posted by Hot_Flatus

No its a one time premium.

Edited because I'm stupid.

That's good to hear though

[Deegee]

Originally Posted by WinnipegFan

Q I have to disagree with you. The less you put down the more the mortgage calculates into the cumulative interest, which is the majority of what you are paying for the first few years of that mortgage. I highly doubt you will get a return on the small percentages of money in comparison to the cost of borrowing it. My advice to all my friends and family is to suffer through and save up 35% down and do a secure line of credit. Then your interest is calculated monthly, you aren't front loading your interest and you are paying off your principal far faster.

Some places will still do 75% HELOCs.

[Travis Munroe]

Originally Posted by I-Hate-Hulse

Yeah but that assumes that:

1) Interest rates don't rise
2) Property values go upwards, not downwards.
3) Economy stays good enough that finding good tenants will not be a problem.

If these 3 things crater, a cash strapped guy is FUBAR. Over levered in debt as they can't service debt payments.

Better they leave a of margin of error in their budgeting. Doesn't mean they need to put 10% down vs 5%, but they really ought to factor in 6-8 months of not having rental income. Or if rates increase by 1%. Or if there's a 10% special assessment.

But the investor isnt getting a second property without 20% equity in his prior and isnt getting a third until he has 20% in the previous 2.

1) Interest rates rise and I am now paying a extra $100 on each property instead of pocketing 100. I would never leverage myself to the point where $200 a month was going to break me.

2) Ill take my chances on property values based on historical data. I am also not buying a " this feels great I want it" home. I am buying a "this property will be easy to rent and I am not overpaying" home.

3) Again, I will take my chances based on Calgary leading Canada on the amount of people moving here.

Of course there is risk in any investment which has a high reward. The flip side is I have 3 properties paid off in 20-25 years and am collecting rent each month without paying the bank a single dime.

If someone is concerned about the risks out outlined, real estate is not the right investment for them.

[Calgary14]

My guess is premium increases since they haven't been raised since the 1990s. Increasing the minimum down payment required to 10% would likely be a bit drastic considering how much houses cost these days

[Johnny199r]

I would feel uneasy about buying with 5k down. All I could think of is the interest. That and condo special assessments!

[GP_Matt]

Premium increases don't seem like a necessity as they are fixed percentages.

[Hugh Jahrmes]

Wrong thread

[GGG]

What does the chmc balance sheet look like over the past twenty years? It has to be pretty good because the most you would ever lose is 20%. The market has been continually up minimizing losses. So what has the cmhc done with its profits?

At 3% for high ratio and assuming 30% loss they can afford 1 in 10 failing. There is a reason private insurers also offer the same rates

[Slava]

Originally Posted by Deegee

Some places will still do 75% HELOCs.

I think the max allowed for a HELOC is now 65% and was reduced a year or two ago.

[Travis Munroe]

Originally Posted by GGG

What does the chmc balance sheet look like over the past twenty years? It has to be pretty good because the most you would ever lose is 20%. The market has been continually up minimizing losses. So what has the cmhc done with its profits?

At 3% for high ratio and assuming 30% loss they can afford 1 in 10 failing. There is a reason private insurers also offer the same rates

Someone on facebook claimed CMHC pulled in nearly 1.3B in the first 9 months of last year.