If you are in the market for an insured mortgage, then you might want to get that mortgage before March 17th. The new premium hike will add approximately $5 to a monthly payment for the average homebuyer.
Ottawa, January 17, 2016 — The Canada Mortgage and Housing Corporation (CMHC) along with other Mortage Insurers is hiking the cost of mortgage loan insurance for homebuyers starting March 17th, as part of new regulatory requirements requiring CMHC to hold more capital to offset risks in the country’s hot real estate market.
By law, Canadian homebuyers are required to have mortgage insurance if they have less than a 20% down payment. The insurance provides protection for the lender in the case of a default. Those with 20% or more down payment aren’t required to have mortgage insurance.
Premiums are also increasing for “non-traditional” insured mortgages, i.e., home buyers with borrowed down payments, a type of mortgage down payment that could grow in popularity as homebuyers strive to gain entry in the housing market.
The premium change will come into effect on March 17th. Homebuyers will be able to access the current lower rates if they have bought a home and are approved before the March 17th deadline, even if they have a later closing date.
Typically, CMHC fees are as little as 0.6% of each loan's value. But on smaller down payments and larger loans, the fees can mount to 3.6% — more than six times as much as the lowest rate.
In an expensive market such as Toronto, where the latest figures show the average house price is $730,472, a borrower with a down payment of less than 10% would need to borrow $682,425 to buy the average house in the city.
Under current rules, the CMHC charges 3.6% to insure that mortgage, or $24,567 over the life of the loan. When the new rules takes effects, the CMHC will charge 4% of that loan's value to insure the loan, which will push the premium to $27,297, an increase of $2,730 or $12 a month.
As of January 1st 2017, Canada's top banking regulator the Office of the Superintendent of Financial Institutions (OSFI) requires banks and insurers to hold more capital against the mortgages on their books. One of the easiest ways to do that is to pass those costs on to borrowers by charging them more to insure loans.
"We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home," said Steven Mennill, CMHC's senior vice-president of insurance. "Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability."