For the third time in the last four years, Canada Mortgage and Housing Corporation has announced an increase on the mortgage insurance premiums Canadians must pay on the purchase of a home with a downpayment of less than 20%.
According to the Crown corporation, the increases in the premiums result in an extra $5 each month for the average CMHC insured mortgage. These changes only come into effect on March 17th and only apply to newly insured mortgages. The premium hike will have no impact on homeowners who are already insured.
The increase in the premiums is illustrated in the chart below:
|Loan-to-Value Ratio||Standard Premium (Current)||Standard Premium (Effective March 17, 2017)|
|Up to and including 80%||1.25%||2.40%|
|Up to and including 85%||1.80%||2.80%|
|Up to and including 90%||2.40%||3.10%|
|Up to and including 95%||3.60%||4.00%|
|90.01% to 95% – Non-Traditional Down Payment||3.85%||4.50%|
At the end of 2016, OSFI, the Office of the Superintendent of Financial Institutions, introduced new rules designed to mitigate perceived risks in the Canadian housing market. The requirements which came into effect on January 1st took measures the government body felt necessary to ensure that corporations insuring mortgages had the appropriate steps in place to protect against a continually bubbling housing market.
Steven Mennill, Senior Vice President of Insurance at CMHC said, “We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home… Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
Acting as the largest insurer of mortgages in Canada, the government-owned corporation is far from in trouble. As of September 2016, CMHC reported that arrears on insured mortgages overall are 0.32 percent, while the total number of loans in arrears was 8,286. The crown corporation has also steadily been decreasing the amount of insurance it is on the hook for, with $514 billion of insurance in force as of September 2016; a $9 billion decrease from the prior quarter and well under its legislated limit of $600 billion.
While home buyers with a down payment of less than 20% are required to pay for the mortgage premiums, the mortgage insurance serves to protect the lender in the case of default. Lenders often insure mortgages for buyers with down payments of 20% or greater – but pay for the insurance themselves; however, not without usually passing on these costs to the homeowner through slightly higher interest rates.
The changes due in March are particularly interesting because they have a more significant impact on purchasers with down payments closer to 20% than those with down payments near the minimum 5% amount. Purchasers of a home with a down payment of 15 percent will see their premium increase by an additional 1 percent, while home buyers with the minimum 5 percent down will only see a 0.40% increase. Some critics have surmised that perhaps CMHC felt that the insurance premiums for home buyers closer to 15% – 20% were too inexpensive compared to the insurance premiums for purchasers closer to the 5% – 10% down payment range.
According to CMHC, two out of three of the home buyers who require CMHC insurance have down payments lower than 10 percent – meaning that the impact of these latest premium increases should be relatively subdued.
First-time home buyers will have to endure these latest premium hikes in unison with the more stringent qualification rules put into place last year. Meaning that first-timers will have a rougher go of things when it comes to the purchase of their first home – it isn’t all bad news, however; as first-time buyers in Ontario will receive greater relief when it comes to the provincial land transfer tax.
If you have questions about whether your next home purchase will be impacted by these changes or what your options are to minimise the costs on your next home purchase, fill out the form at the top of the page and speak to a MonsterMortgage.ca agent today!BACK TO BLOG FEED