CMHC to Increase Insurance Premiums

As of May 1, 2014, CMHC  (otherwise known as the Canada Mortgage and Housing Corporation) is set to increase the mortgage loan insurance premiums for home owners.

The increase applies to mortgage loan insurance premiums for owner occupied, self-employed and 1-to-4 unit rental properties, including low-ratio refinance premiums. This does not apply to mortgages currently insured by CMHC.

What is CMHC insurance?piggy pank

Mortgage loan insurance is typically required by lenders when home buyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.

To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.

What Does this Mean for You?

For the average Canadian home buyer requiring CMHC insured financing, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. This is not expected to have a material impact on the housing market.

Loan-to-Value Ratio

Standard Premium (Current) Standard Premium (Effective
May 1, 2014)
Up to and including 65% 0.50% 0.60%
Up to and including 75% 0.65% 0.75%
Up to and including 80% 1.00% 1.25%
Up to and including 85% 1.75% 1.80%
Up to and including 90% 2.00% 2.40%
Up to and including 95% 2.75% 3.15%
90.01% to 95% –
Non-Traditional Down Payment
2.90% 3.35%


For more information on CMHC’s mortgage insurance rate increase, click here.

Big Five Banks Unwilling to Give Mortgages for Micro Condos

What are Micro Condos?

Many developers are building what has been referred to as “micro condos”.  These are condominium units that are less than 400 square feet.  These micro condos have seen success in over populated areas such as Tokyo and New York, and are beginning to come to urban centres such as Toronto and Vancouver. 

Many people are surprised to find out that the big banks are often unwilling to provide financing for these micro condos.  This has led to purchasers, realtors and developers being frustrated and confused. 

“There are certain Canadian banks that won’t fund condominiums below a certain size but there are a lot of B-lenders that will and so the biggest mistake that the A-lenders are making is not funding those,” Brad Lamb of Brad J. Lamb Realty told , Canadian Real Estate Wealth. “They don’t actually know what they are doing.”

According to Mr. Lamb “They are greatly mistaken and poorly informed of where they should be putting their money,” he explains. “The funny thing is that they are prepared to lend money on the products that take the longest to sell and hardest to sell, yet the properties that rent instantaneously and sell instantaneously are the ones that the most people can afford.”micro condo

Lamb says the demand for micro-condos is “unlimited” in downtown urban centres, with young professionals craving these compact spaces.

So what does that mean for you?

Whether you are thinking of purchasing one of these units as an investment or to live in, in order to avoid any unexpected surprises, make sure you speak to a mortgage professional in order to ensure that you will be able to secure financing. 

While you can still get private financing or a B lender, it may not come with the interest rates or conditions that you would have gotten had you received a mortgage from one of the Big Five banks. 

Always make sure you make your offer is conditional on financing in order to avoid surprises. 

Change in TD Bank Mortgage Standard Clause

Buyer Beware – Always Read the Fine Print

TD Bank has changed the fine print of its Variable Rate Mortgage Contracts for conventional mortgages. 

Under the terms of the new clause, if at any time the loan to value ratio of your mortgage exceeds 80 per cent, the bank has the right to demand that the borrower bring it under the 80% threshold, or to obtain an appraisal in order to prove that the fair market value does not exceed the 80% threshold.  The appraisal will likely be at the homeowner’s expense. 

The old clause had a similar clause that triggered at 75%, however the bank was limited to situations where the interest rate fluctuations have driven the loan to value ratio to be above the 75% threshold. 

This change is likely due to concerns TD Bank has about the future of the Canadian real estate market, and fears that home prices are going to decrease in the future. 

How can this change affect you?

First, it’s important to consider what is Loan to Value Ratio. The term is commonly used by banks and to represent the ratio of the mortgage as a percentage of the total appraised value of the property. 

For example, let’s say you purchased a home for $500,000 and you plan to pay 20% of the loan, so $400,000.00. price going downIn this circumstance your loan to value ratio would be 80%.  However, if the market decreases, and the value of your home decreases to $400,000, and you still owe $350,000 on your mortgage, the loan to value ratio would now be 87.5%.  According to this new clause, in the above mentioned example, TD Bank would be able to ask you for an additional $30,000 in order to bring the Loan to Value Ratio back to 80%. 

Nobody can say for certain what will happen to property values in Canada.  Ask 10 people and you will likely get 10 different opinions. 

The problem, is that property values are often outside of the control of the borrower, and this new clause can force the borrower to have to come up with significant amounts of money, or else the mortgage could be called. 

This change is only in regards to conventional variable rate mortgages, so where the initial down payment was at least 20% and mortgage insurance was not required. 

If you have an open variable mortgage, typically you can convert to a fixed rate mortgage at any time.  If the borrower finds themselves in a situation where they have to pay a significant amount of money to bring the mortgage to the 80% threshold, will TD Bank will still allow the borrower to convert to a fixed rate mortgage to avoid the payment?  Another question is whether TD Bank will allow the borrower to purchase mortgage insurance and convert to a high ratio mortgage as an alternative to bringing the mortgage to the 80% threshold. 

It remains to be seen whether any other banks or lending institutions will follow suit.  However, this is something to consider when getting a new mortgage for your home. 


Unconditional Offer – The Potential Problems

Unconditional Offer: the Pitfalls for both Buyers and Sellers

With today’s low interest rates, low supply and high demand, bidding wars remain commonplace in many locations in the GTA and surrounding areas. 

This competitive housing market has left many potential homebuyers tempted and sometimes even encouraged to write a “clean” offer to purchase.  In other words, an unconditional offer. 

Once accepted, an unconditional Agreement of Purchase and Sale is a binding contract.  Unconditional Offer

As a purchaser, what are the risks of an unconditional offer; without a financing clause?

As a buyer, you may believe that you have done everything right.  Prior to making any offers, you went to the bank, or a mortgage broker, and were pre-approved for a certain amount. 

What is often not explained is that mortgage financing is not based on affordability or income alone.  It is also based on the property you intend to purchase.  Your ability to pay the mortgage is only the first piece of the puzzle.  Particularly in high ratio mortgage approvals (less than 20% down payment), your approval will be subject to an appraisal to confirm the value of the home, and at the insurer (CMHC or Genworth)’s sole discretion. 

Let’s say for example, you were pre-approved for $500,000.00, based on your income and the parameters of affordability.  You then find the perfect home.  It is listed for $350,000.  The home is in a popular location, and there is a bidding war.  As a result, in order to make sure you purchase this home, you offer $400,000.00.  You have a 5% down payment of $20,000.00, plus closing costs.  You make this offer unconditional because you want to make the offer as attractive as possible.  Your offer is accepted.  The bid was $100,000 less than your pre-approval, you’re ecstatic. 

Here’s what could go wrong

You go back to your bank or mortgage broker, and the deal is submitted by the lender to CMHC for their approval.  CMHC then compares the property you purchased against recent and comparable sales in the area.  CMHC then determines that they will not support the value you offered, and after an appraisal, they assess the maximum value of the home to be $380,000.00.

What does this mean for you? 

They will only allow a mortgage of 95% of $380,000.00, which is $361,000.00.  You would then be responsible for the shortfall in your down payment. 

If you cannot come up with the difference, you may not be able to close the purchase.  In addition, you will likely lose your deposit, and may be sued by the sellers. 

If you fall within the high ratio mortgage category, not making an offer conditional on financing can be very risky. 

As a seller, what are the risks of an unconditional offer; without a financing clause?

For a seller, an unconditional offer provides what can appear to be immediate certainty. 

When a purchaser includes a financing condition, there is a short term “out” for the purchaser.  If they are unable to obtain financing, in most circumstances, you will know within a short period of time.  You will then likely be able to attract a similar level of interest in your home that you experienced when it was first offered for sale.  The risk of accepting a financing condition is limited and often inconsequential. 

On the other hand, if a buyer offers to purchase your home without any conditions, in spite of the fact that the will require mortgage approval, and provides you with a 5% down payment.  You accept their offer, and you’re happy. 

However, you may be accepting more risk than you realized. 

Here’s what could go wrong

Consider if the purchaser is unable to obtain mortgage financing for the agreed upon price, for example, like the purchase in the above scenario.  For fear of losing their deposit, the purchaser may try arrange financing through alternative means.  The purchaser may choose to tell you of this misfortune as soon as they learn of it, a few weeks down the road or on the eve of closing.  In the mean time, you have purchased a new property, based on the funds you believed you would receive from the sale of your home.  However, on the day of closing, the deal has collapsed. 

Wait a minute, what about that deposit.  Unless the purchaser agrees to surrender the deposit, the real estate brokerage is not permitted to release deposit monies that are “in dispute”.  It may require legal action in order to obtain the deposit.  While it may be wrong or even unethical for the purchaser not to surrender the deposit monies, it is certainly a possibility.

Click Here for more information why you may want to make your offer conditional on a home inspection.   

Contact your local real estate legal professional at Frost Law, Professional Corporation prior to accepting or drafting an Agreement of Purchase and Sale to ensure your rights are protected. 

What Type of Mortgage Should I Choose?

How to pick the perfect type of mortgage.

type of mortgage

With record low interest rates, more people are getting into real estate than ever before.  While many people believe that mortgages are more of less the same.  I can assure you, they are not.

It’s tempting to choose the mortgage with the lowest interest rate.  It’s attractive because the lower the rate, the less interest you will end up paying and the faster you can pay off your mortgage.  However, picking a mortgage is more than just interest rates.  There are other factors to consider to be mortgage free faster. 

So what are the considerations when determining the right type of mortgage for you?

Fixed or Variable Rate?

Fixed Rate Mortgage: The mortgage interest rate and your payments will stay consistent for the term of your mortgage.

Variable Rate Mortgage:  The mortgage rate will change with the prime lending rate set by your lender. 

When interest rates are low, a variable mortgage usually offers lower rates than a fixed rate. 

Which one should you choose?  This has become one of the most common questions I am asked by clients.  Historically, variable rate mortgages have fared better in the long run.  However, with record low interest rates, and the Bank of Canada suggesting that they are only going to go up. (The million dollar question is when, and how much).  There is no easy answer. 

For most mortgages you have to choose one.  Which type of mortgage will be best when your term expires is impossible to predict with any certainty. 

The Term of Your Mortgage:

A Mortgage term is the length of time you are committed to a mortgage rate, lender, and conditions of the mortgage.  The term can vary between 1-5 years. 

Which one you choose will have a direct effect on the interest rate, with shorter terms historically having a lower rate. 

When the term expires, you will then have to renew your mortgage for the remaining principle, for the interest rates available at the end of the term.

Flexibility – Pre Payment Privileges:

A Prepayment privilege is the ability to prepay a portion of the mortgage principal before it is due and without penalty. Each individual mortgage has varying rules regarding whether it allows additional payments, when you can make these additional payments and the amount of additional payments.  For example, a mortgage may provide that 15% of the principal can be paid annually without penalty.

Often, limited prepayment privileges offer a better interest rate. 


As you can see, picking the right type of mortgage for you is about more than just choosing the lowest interest rates.  It’s about determining what works best for your family. 

Please try our Instant Calculator to give you a general idea of how much your mortgage will cost you monthly.



    *The calculator contained on this page is for estimation purposes only. The actual payment amount must be obtained from your lender. Frost Law, Professional Corporation assumes no liability for the accuracy of the calculator.

    Collateral vs Standard Charge Mortgage

    Collateral vs Standard Charge Mortgage:

    and How It Can Affect You

    CongratulationsCollateral v. Standard Charge Mortgage, you purchased a home.  Now it’s time to obtain a mortgage.  Many people only consider the interest rate and amortization period without really considering the type of mortgage they are signing up for.

    As many lenders are moving to collateral charge mortgages it’s becoming increasingly important to understand the differences between a collateral or standard charge mortgage. Both types of mortgages have advantages and disadvantages; understanding which one right for you depends on your down payment, future needs, and long-term goals.

    Collateral vs Standard Charge Mortgage:

    With a standard charge mortgage, you agree to the terms of the mortgage:  the amount you are borrowing, the interest rate and the term.  For example, if your home is valued at $500,000 and you put $100,000 down, then your mortgage is $400,000.  The mortgage is registered at $400,000.00.  If for example you wanted a credit line or to refinance, you would have to reapply.

    On the other hand, a collateral mortgage registers the loan on your property between 100%-125% – regardless of the initial amount borrowed from the lender.  For example: if your home is valued at $500,000, and you borrowed $400,000, a mortgage could be registered against your home for up to $625,000.  The thinking behind this is that if you want to borrow money in the future, there is an understood global limit.  The advantage to the borrower is that there will be no additional legal fees to refinance.  The reality is that the lender ensures that their customers do not move their mortgage business elsewhere.

    Before making this decision, consider the following: 

    If you want to switch to another lender, you will likely be forced to pay legal and registration fees.  Further, many banks won’t allow transfers because of the other loans tied to the collateral charge.  This makes it harder to leave the lender because all of your debt under this one agreement.  This significantly impacts your negotiating power at maturity.  If the lender knows you can’t move, there is no incentive to offer the best rates.

    What if a few years down the road an investment opportunity comes along, and you need a second mortgage.  Because the mortgage is registered for the full value or more of the property value at the time of the mortgage, there is no ability to put a second mortgage on title as there may not be any room to borrow.   The only option at this point is to determine what the penalty would be to pay out the mortgage and often, the amount is too high.

    So which one is right for you?

    If you feel that there is a very good chance you will refinance to consolidate debt or to extract equity for a renovation or to invest, then a collateral charge mortgage may be a wise decision.

    If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will suit your needs, and will give you the ability to move to another lender at renewal should you want to without incurring legal fees. In other words, it’s easier for you to keep your options open. If need to borrow more with a standard charge mortgage, you have the option of a second mortgage or line of credit.

    Contact your local real estate legal professional at Frost Law, Professional Corporation to discuss which option is right for you.

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