In this post I look at CMHC fees:
What are they?
How are they calculated?
If you paid them once, do you pay them again?
Is there a way to avoid them or pay a reduced amount on your next home purchase?
Hi, everyone. Rowan Smith at the Mortgage Centre. I want to talk today about CMHC fees. Specifically, when they apply, what they are, and if there are ways to avoid them on the next purchase.
First off, what is it? CMHC: Canada Mortgage Housing Corporation. It’s a government organization that’s set up, and it governs the lending to Canadians for mortgages in excess of 80 percent financing.
So if you have less than 20 percent down, you will face CMHC fees. These fees are a sliding scale. They can range from 1.5 percent up to 3.5 percent of the mortgage amount, depending on how much you’re putting down. So the more you put down, the less your fee is going to be.
Now these fees are nonnegotiable. They’re at every single institution. There’s no way to go around them. It doesn’t matter if you’ve had a 30-year banking relationship with your institution or not, they will be charged. The government’s mandated that way.
If you’re going to buy one property, let’s say it’s a $400,000 home, and you put five percent down. You’re a first-time home buyer. You want to take the maximum amortization. That’s going to have a 3.15 percent CMHC premium. On that amount, you’re looking at $11,000 or $12,000 added to the mortgage.
You don’t have to write that check up front. You don’t have to be able to write a $12,000 check. It gets added into the mortgage, and you pay it back over the life of the mortgage. However, you still pay it. You pay it one way, when you sell the house or whatever.
Now if you move from one house and decide to move to another one and upgrade in five years’ time — if you don’t need any additional dollars — you can port your mortgage over to that home and not pay any additional CMHC fees.
However, if you have already paid CMHC fees and you need more money, it’s going to be the lesser of. There’s a calculation, but you only pay CMHC fees on the new dollars that you borrow.
If you’re going from a $400,000 home with five percent down to a $550,000 home with five percent down, you would be borrowing that difference between your old mortgage and what you need on the new one. You’re going to get CMHC premiums on that amount added again to the mortgage.
Now, if you go sell that home and then subsequently six months later go and buy another one, you can apply for some sort of a rebate through CMHC. How they calculate that rebate is not really precise.
It’s something where I’ve had to send it in to them, and they’ve come to an agreement. But if you’ve already paid CMHCs before, you should be able to get either a rebate or a reduction.
I’ve got a client right now who’s in a situation where they’re selling a place, moving to a new home, and they’re requiring a significant increase in the funds. But the bank would not let them port that mortgage over there.
It had to do with the type of product they had, the internal policies. It upset the client, so they came to me and said, “Can you do our mortgage instead?” I showed them. They said, “Well, wait. We’ve already paid CMHC fees. Why do we have to pay it again?”
Now if you’re going to port your mortgage from house one to house two, you can do that. The problem is that you have to retain the original amortization of that mortgage. If you had a 35-year mortgage, and you’re four years into it, and you decide to go to the new property, you’re going to have to retain that 31 years of amortization.
Now if you’re like many people in Vancouver, you need a full 35 years to qualify in order to get approved. If that’s the case, you’ll have to pay it off, pay the CMHC premiums all over again.
If, however, you can get qualified and approved without adjusting your amortization, then you can move it over there and not suffer the CMHC premiums.
Clear as mud. I’m sure it’s a complicated topic, but if you have a situation where you’re worried about paying CMHCs twice, please give me a call. I can run through your options. Rowan Smith for the Mortgage Centre.