CHMC Cuts Second Mortgage

by Darrin DeRoches May 8 - 14, 2014

Here we go again with the mortgage rules getting tougher and tougher. The CHMC has decided, in all their wisdom, not to insure a second home for individuals looking to buy either a cottage, income property or even a second home in a divorce. They will not insure the mortgage to a second property and without insurance you cannot secure a mortgage unless you put down 20 per cent, which in turn will save you thousands of dollars on the insurance.     So what are you options with this new rule? As we just mentioned, you put down 20 per cent and you can get a mortgage just about anywhere. You put the second mortgage into a family member’s name and gift them the down payment. The last option is not to buy the second home. Actually, there is another option by using private–sector mortgage insurers.     Genworth is the most popular insurer who will still allow a second mortgage but they tightened up their lending practices. The property can only have one unit in it. So no income properties with them. You can buy the cottage but no duplex or even a nanny suite for your aging parents if it has a self–enclosed apartment in the house. Genworth would allow you to buy a property for yourself to live in or a family member, but not now. Think of a divorce situation and you would like to have income coming in with a second unit — not now. Rent or hope your ex–spouse can qualify on their own.     This new rule will allow the secondary market to charge even higher insurance rates for these second homes and devalue the price of income properties since only those with 20 per cent down will be able to buy them. If you are thinking of buying a home in the near future, you may want to consider buying an income property first and qualifying with as little down as 5 per cent. This will then create a great investment and in a few years look to buy a second home for yourself since it will be only one unit and all of the insurers will give you insurance with 10 per cent down instead of paying 20 per cent and higher rate of insurance.     I have clients this week who are using this strategy so that they can look back in 20 years with a great investment property and a family home. This may seem simple but it can make them over a half of a million dollars by buying the income property first and qualifying for more and putting down less.     This change of insurance by CHMC happens on May 30th so most people would not be able to do anything about it and worst of all, most people do not even know anything about it. Information is key and using a broker who is on top of the market can save you thousands today and make you a million over the next 20 years. V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at sold@uniquerealty.ca.