CMHC hiking mortgage insurance premiums
For the third time in four years, CMHC will be increasing its mortgage insurance premiums. This will result in a higher monthly payment for home buyers who require mortgage default loan insurance & looking to purchase a new home on or after March 17th, 2017
The government-owned mortgage insurer said the increases would increase a mortgage monthly payment by approximately $5 for the typical insured mortgage loan. The changes would only apply to new loans submitted on or after March 17th, 2017. According to CMHC, the move is a response to OSFI's new capital requirements that came into effect on January 1st, 2017, which require mortgage insurers to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.
As per CMHC, during the first 9 months of 2016:
***The average CMHC-insured loan was approximately $245,000
***The average down payment was 8%
***The average gross debt service ratio (GDS) was 25.6% (CMHC likes this to not exceed 32%)
Here is a comparison chart showing the current premium rates versus the new rates coming into effect March 17th, 2017.
| Loan-to-Value Ratio | Standard Premium (Current) | Standard Premium (Effective March 17, 2017) |
|---|---|---|
| Up to and including 65% | 0.60% | 0.60% |
| Up to and including 75% | 0.75% | 1.70% |
| 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% |
CMHC is claiming that this new hike is not meant affect housing markets or valuations, but simply to preserve the returns on capital in the mortgage industry. The premium increases are coming at a time when purchasing a home, especially for first-time home buyer’s face mounting challenges. With newly stricter income-testing policies put in place and the rise of mortgage rates, some potential home buyers may have to limit their purchase price. Not to mention that home prices are at an all-time high.
Neither Genworth nor Canada Guaranty, Canada's other private-sector insurers, have announced premium changes yet. However, both companies are expected to follow CMHC's announcement.
It is important to contact a mortgage broker to find out how or whether you will be affected by this latest change. Contact one of our professional mortgage brokers today.
Click here to read the full article at the Globe & Mail. Or, click here to view CMHC's official announcement.