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CMHC is a borderline scam
March 6, 2017
7:49 pm
Norman1
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Top It Up said

I want the government out of the business, the bank act revised, and the banks to charge the real cost of lending and holding the risk of mortgages. After all that's how we got here in the first place - extending mortgages to 40 years and banks acting like go betweens without an iota of risk . pretty damned easy to post billion dollar quarterly profits when you assume minimal risk.  

That's dead wrong about how banks make their billions.

Banks don't make much money from CMHC-insurable mortgages. It is a very competitive type of business. That's why they got into other areas, like wealth management and capital markets.

In 2016, Bank of Montreal's Canadian personal and commercial business, that includes mortgages, credit cards, and personal & business bank accounts, accounted for only 42% of their profits.

CMHC-insured mortgages are not where the lucrative money is made. Smaller competitors, like Home Capital (behind Oaken) and Equitable Bank (behind EQ Bank), do them to keep themselves in the mortgage brokers' mind. But, they actively unload such low-risk, low-margin mortgages afterwards to free up capital for more profitable near-prime mortgages for borrowers who don't qualify for mortgage default insurance. Details are in my previous post.

CMHC mortgage default insurance does not, and has not, cost taxpayers anything. $4 in premiums and fees is collected for each $1 of claims paid. CMHC has $18 billion in earnings to show after these years.

CMHC has been doing mortgage insurance since 1954. I don't think Vancouver and Toronto are CMHC's first real estate bubbles it has seen in the last 60+ years.

I see no reason to kick CMHC out of the mortgage insurance business.

September 7, 2017
6:37 am
macwhitby
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I had put only 5% down when I bought my first house in canada (Dec 2015) after one year from my landing date. Is there anyway I can get my CMHC insurance money back ($15000), if I have enough money (20%) to put towards my mortgage now ? Or once its gone, its gone for ever ?

September 7, 2017
7:56 am
Bill
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As far as I understand it's gone forever. The insurance is levied by CMHC to the lender and the lender charges you that extra cost so technically you didn't pay the insurance, the lender did. The insurance applies to the purchase transaction and then that's it.

Best to save up 20% down-payment, re this aspect anyway.

September 7, 2017
8:14 am
Norman1
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I don't think one can get any of the premium paid back.

The CMHC insurance is permanent. The mortgage is insured until it is paid off. Coverage continues even after the outstanding balance eventually drops below 80% of the original value of the house.

September 7, 2017
8:37 am
AltaRed
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Norman1 said
I don't think one can get any of the premium paid back.

The CMHC insurance is permanent. The mortgage is insured until it is paid off. Coverage continues even after the outstanding balance eventually drops below 80% of the original value of the house.  

An interesting point though. If one went out and got a new mortgage from another lender at the end of the term of the previous and the new mortgage amount was low enough to not require CMHC insurance, then CMHC insurance would not apply on a go forward basis.

September 7, 2017
2:34 pm
Norman1
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AltaRed said

An interesting point though. If one went out and got a new mortgage from another lender at the end of the term of the previous and the new mortgage amount was low enough to not require CMHC insurance, then CMHC insurance would not apply on a go forward basis.  

That would depend on the new lender.

If it were also an "Approved Lender", then the new lender would try to have the existing CMHC default insurance re-assigned to it, as allowed by section 4.3 of the CMHC Master Loan Insurance Policy:

4.3 Assignability of Insurance Coverage

(2) Where an Approved Lender makes a Housing Loan to a Borrower for the purpose of discharging the Unpaid Principal Balance of a Housing Loan that is insured by CMHC, then provided such new Housing Loan satisfies the terms and conditions of the Commitment in respect of the pre-existing insured Housing Loan, including with respect to the remaining amortization period, the insurance coverage in respect of the pre-existing Housing Loan may be transferred to such new Housing Loan in accordance with the Policy.

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