Insured Buyers are the Majority

home-buyingMortgage insurance is typically mandatory for homebuyers without 20% equity.

Putting down 10% on the average $350,152 home, for example, means you’ll cough up a $6,302 insurance premium (given fully documented income and decent credit). Since insurance premiums are tacked on to your mortgage, that adds up to $9,000+ if you amortize it over 25 years.

Of course, you can avoid insurance altogether by plopping down 20% or more. The challenge is, only a minority of buyers have that sort of equity.

According to the latest data from Will Dunning, Chief Economist of CAAMP, less than 4 in 10 buyers have 20% down payments.

For those purchasing from 2010 through spring 2012:

  • 41% had less than a 10% down payment
  • 21% had a 10-19.99% down payment
  • Only 39% put down 20% or more.

(This survey included both first-time and repeat buyers. First-time buyers accounted for 56% of the dataset. Totals don’t add up to 100% due to rounding.)

Given the widespread use of mortgage insurance, it’s easy to see how regulator’s insurance rule changes can rapidly alter home buying trends. In another few months, we’ll get a good sense for how the most recent rule tightening has impacted nationwide mortgage volumes.

Rob McLister, CMT

  1. Given that many of those people get their down payments from their RRSPs (which ostensibly is debt to oneself and must be paid back), bank incentive programs, and loans from family, the number of buyers with <20% is probably in reality higher.
    A 15% correction in the market is check and mate.

  2. That’s an inane question. If you’re going to have an agenda “Watchdog,” at least try to disguise it. Maybe then you’ll get more suckers buying into your anti-real estate propaganda.

  3. It’s not an inane question. CAAMP has ramped up lobbying efforts in Ottawa and on media like BNN trying to get back on the CMHC teat after the feds try to wean it off. CAAMP tries to paint disaster scenarios if things are not reversed. Funny how most CAAMP members would delude themselves as “free enterprise” types.

  4. Suckers? Buying into?
    I don’t always agree with watchdog, but the “propaganda” is overwhelmingly on the pro-real estate side. That’s also the only side you could buy in to. The anti real estate side doesn’t have anything to sell except the odd book.

  5. You and your crony Watchdog are perversely warped on this issue. Ottawa has begun an economic chain reaction with excessive mortgage rule tightening. The 10-30% sales declines we are seeing are just the beginning. When people lose their home equity and jobs they will want the heads of people like you on a stick.

  6. Excessive mortgage rule tightening? For how many decades did CMHC have 25 year amortization mortgages? And if I recall it used to be you needed 10% down to get CMHC insurance. If people lose home equity and jobs, it’s because CMHC insurance should not have been tampered with in the first place. Don’t blame the hangover on the people who take away the booze from the drunk.

  7. The only people who are ‘warped’ on this issue are those who believe the government could continue subsidizing loans without other economic consequences. If Ottawa hadn’t tighten mortgage rules, CMHC and Genworth’s insurance limit would have been breached by the middle of next year. That’s a big problem for our banks.
    Yes, people will lose their equity, jobs and homes, because that’s what happens to overly-subsidized markets that must eventually return to private market funding. We already have many blueprints for how this unfolds and blaming those who warned of unsustainable schemes has no part in it.

  8. According to CMHC’s home purchase report, the average market share for first-time buyers during 2010-12 is 35%; CAAMP’s survey is weighted 56% of first-time buyers, which suggests the results were skewed to a self-serving opinion.

  9. Rob, good work on providing information again. I would like to see an article about insurance on mortgages that does not need to be there, what are the banks doing to help the insurance crisis and if Brokers think they have a roll in moving clients from insured to uninsured situations. It seems we have millions if not billions of insured loans hovering at the 40-60% LTV. If upon renewal or refinance (assuming the same LTV range) these loans were moved to an uninsured situation does that not free up room before we hit the Insurance cap?

  10. CW,
    That CMHC report you cite surveys major centres only. First-time buying is higher in the larger number of secondary markets, which raises the national average. Moreover, CAAMP’s data covers three time periods: 2010, 2011 and part of 2012. As you may or may not be aware, first-time buyer numbers vary widely depending on the year and survey. In short, it would be rash to imply any agenda based on first-time buyer ratios alone.
    Also, to correct a point you made, the average was not 35% from 2010-2012. 2011 is the latest data point, and this data was reported (released) in 2012.
    In 2010 (reported in 2011), 38% were first timers.
    In 2009 (reported in 2010), 43% were first timers.

  11. Wake up. Flaherty didn’t just change amortizations. He made a laundry list of changes all at once. Many are new rules that were never in place before.

  12. Thanks Cory, It’s an interesting question. Folks often benefit when their low-ratio mortgages are insured. It gives them broader access to lenders (many of whom offer best rates only on insured mortgages) and often saves them CMHC premiums when porting & increasing. These people probably wouldn’t be too thrilled if their insurance was arbitrarily terminated. Cheers…

  13. Gosh, the rending of garments has begun. Wake me when interest rates normalize. You are complaining so bitterly about some toying around the edges, imagine what it would be like if credit issuance had completely returned to normal.

  14. What about a buy-out option? CMHC refunds a little and tosses the policy.
    Once a mortgage is at 45% LTV it is no longer in need of insurance, really. How much does it count for in CMHC’s pool at that point? The full amount, or only the reduced amount of actual risk?

  15. There is a very small minority of those that can afford the 20% down payment today; or the insurance that goes along not paying that percentage. I agree, it will be interesting to see what happens once prices come down a bit, making those down payments a bit more affordable. That won’t be for some time though.

  16. I’m sorry, but interest rates should be low and the mortgage industry highly regulated, and home prices should have a max price set by the government. Cracking down on people’s spending in a capitalist society makes no sense if you wish to have continual growth. Money should be easy and cheap to get so that people will spend and the government can collect its taxes. Money in the bank is no good to anybody, especially our economy.

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