CMHC & Stress Test

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Home buyers (and not only first time buyers) are wondering: “What is C.M.H.C. and what is the Stress Test”? So lets ask a mortgage expert.

In this audio interview, I’m speaking with Sandi Huynen of Dominion Lending Centres. Sandi is a mortgage broker with nearly 2 decades of experience in the lending industry.

For full transcript of this audio, click on the down arrow

Bo Kauffmann: Buyers are asking what is CMHC and what is this stress test we keep hearing about We’re going to answer that question right away.

Bo Kauffmann: So buyers are always asking, what CMHC can I avoided How much does it cost What does it mean Um, and what about this stress test Is it going to make it tougher for me to buy a house So today we’re going to make a phone call. We’re going to have a phone interview with a very nice young lady from Dominion Lending Center. Sandy Heinen has been in the mortgage industry for the last a dozen or so years, has been the banking industry for nearly 20, and she’s going to answer some of those questions for us. So let’s give her a call.

Bo Kauffmann: Welcome Sandy. And thank you for joining me on the show.

Sandi Huynen: Thank you for having me Bo.

Bo Kauffmann: Okay, so let’s get right into it. B uyers often hear people talking about CMHC. What does that stand for and what is it?

Sandi Huynen: So CMHC stands for Canada mortgage and Housing Corporation and is used if you don’t have, a traditional convention mortgage with 20% down, your mortgage would be insured through CMHC and there would be a premium that you would pay to have this type of service.

Bo Kauffmann: Okay. So is there a way, or like can buyers avoid it, like if they don’t, let’s say somebody a first time buyer only as 5% down to, if I understand it right, that they have to have CMHC.

Sandi Huynen: Well there is another company called Genworth that they can use as well as an alternative.

Bo Kauffmann: Okay. But the bottom line is they need some kind of insurance. Uh, because in Canada you need 20% down and if you don’t have it , you need to get this insurance company.

Sandi Huynen: Absolutely. And then once you get this type of insurance, you can buy a home with 5% down payment and then you would have a premium. So if you’re going to have a 5% down payment, you would have the premium from CMHC. They would charge a fee to use their service and that would be added onto your mortgage.

Bo Kauffmann: Okay. That was actually going to be, that’s good. That was going be my next question. Buyers don’t know. No, that’s good. And buyers don’t have to pay this out of pocket. It just gets added onto the mortgage.

Sandi Huynen: Yes, absolutely. The premium would be added onto your mortgage, so if you can’t save up more than 5% it’d be added to the mortgage and then you wouldn’t really notice it as much in the payment over the 25 year amortization,

Bo Kauffmann: It wouldn’t hurt quite as much.

Sandi Huynen: Yeah, exactly.

Bo Kauffmann: Okay. All right, so then lately they’ve been talking in the news about a new stress test that does some of the news outlets make it like it’s tougher to get a mortgage or it’s more expensive or harder to get. What is this new stress test at they’re talking about

Sandi Huynen: Ff there was a right rate hike, t hey just want to make sure that you’re going to be able to afford the mortgage. So if you’re going to be getting a rate of say 3% that would still be your rate on your mortgage, but you would have to qualify for that mortgage using a rate higher. So you would use the Bank of Canada’s benchmark rate to qualify for that mortgage.

Bo Kauffmann: If I understand it right then if you are a first time home buyer, you need CMHC, let’s say you’re putting five or even 10% down and you’re getting 2.99% but you have to have enough income to qualify for the current benchmark rate.

Sandi Huynen: Absolutely. Yes. That is correct. You would have to qualify with the Bank of Canada benchmark rate.

Bo Kauffmann: Okay. And this is July, 2019 what is as an example, what’s the current benchmark rate right now?

Sandi Huynen: The benchmark rate at Bank of Canada is 5.34% currently.

Bo Kauffmann: Okay. So that’s just kind of an insurance policy. Um, it’s just that we don’t want to have mortgages for people that can just barely afford the 2.99 if it goes up to 3.2 or 3.4 they’re in trouble kind of thing. T hat’s kind of what they’re doing. All right. Exactly. Okay. Well thank you very much for this, a short but interesting, uh, interview. I’m going to call you again in a, in a few days and we’ll do another one

Sandi Huynen: for sure. Thank you so much.

Bo Kauffmann: Thank you, Sandy. Bye. Bye. That’s been Sandy Huynen from Dominion Lending Centers at 78 Marion Street. You can get Ahold of Sandi at (204) 996-6046.

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