CMHC to hike mortgage insurance premiums starting March 17

CMHC announced early Tuesday it is increasing its loan insurance premiums effective March 17.

By law, anyone putting down less than 20 per cent of the purchase price of a home in Canada must pay mortgage insurance, even though the homeowners themselves don't benefit from that coverage. Rather, it's a fee borrowers pay so if they default on loans, their lenders aren't on the hook. Instead, an insurance payout would cover any defaulted loans.

Premiums are calculated based on the amount borrowers are getting versus the size of the down payments.

Typically, CMHC fees are as little as 0.6 per cent of each loan's value. But on smaller down payments and larger loans, the fees can mount to 3.6 per cent — more than six times as much as the lowest rate.

In an expensive market such as Toronto, for example, where the latest figures show the average house price is $730,472, a borrower with a small down payment of less than 10 per cent would have to borrow $682,425 to buy the average house in that city, mortgage comparison website RateHub.ca calculates.

Under current rules, the CMHC charges 3.6 per cent to insure that mortgage, or $24,567 over the life of the loan.

Under new rules starting March 17, the CMHC will charge four per cent of that loan's value to insure the loan. That pushes the premium to $27,297, an increase of $2,730 or $12 a month.

Different borrowers will pay different amounts depending on how much they are borrowing, and how much equity they have.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, Senior Vice-President, Insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

According to the Crown Corporation, the average homebuyer will see a $5 increase to their monthly mortgage payment as a result. That $5 certainly adds up, however, to a total of $1,500 over the course of a 25 year mortgage.

The increase is the result of last year’s mortgage rule changes, CMHC claims.

“Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect OSFI's new capital requirements that came into effect on January 1st of this year that require mortgage insurers to hold additional capital,” it said in a release.

“Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.”

This latest hike comes less than two years after the most previous one, which was announced in April 2015.

Loan size as % of home price     Old fee       New fee
65%                                                  0.6%             0.6%
75%                                                  0.75%           1.7%
80%                                                  1.25%           2.40%
85%                                                  1.80%           2.80%
90%                                                  2.40%           3.10%
95%                                                  3.60%           4.0%

Are you looking to buy a property?  If you like, I can tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much I could save you right now if you have an existing mortgage.

Until next time,

Your mortgage adviser Evgeny Kamenskiy