CMHC raising rates for mortgage insurance

By Special to MoneySense on February 28, 2014
Estimated reading time: 2 minutes

CMHC estimates the increase will add about $5 per month to the average home buyer's mortgage payments.

OTTAWA – Canada Mortgage and Housing Corp. is raising the rates it charges to insure mortgage loans. The federal agency said Friday the new premiums will go into effect May 1 and apply to new mortgages, not those already insured. How much the rates will increase depends on how much a prospective home buyer is putting down on their purchase. Financial institutions generally require mortgage loan insurance for buyers making a down payment of less than 20 per cent. The insurance protects the lenders from defaults but the costs usually are borne by the borrowers. Buyers putting down a 10 per cent downpayment will see premiums rise to 2.4 per cent from two per cent; those with a 15 per cent down payment will see an increase to 1.8 per cent from 1.75 per cent. The increases could add thousands to the overall cost of buying a home for those borrowing large amounts and putting little down, but CMHC estimated the increase will add about $5 per month to an average buyer’s mortgage payments. “This is not designed to affect housing market activity,” said Steven Mennill, CMHC’s vice-president of insurance operations. The government-owned agency said the new rates are in response to its move to increase its capital ratios, a measure of its financial security. “The international and Canadian regulatory guidelines over the past years have trended to higher capital holding levels for mortgage insurers and obviously we are no exception to that,” CMHC chief financial officer Brian Naish said. CMHC, which reviews its premiums on an annual basis, said it will start announcing the results of the review every year. The federal agency is the country’s largest insurer of home mortgages. CMHC’s insurance rates have remained stable for several years, but saw several changes in the early 2000s including a cut to homeowner premiums of 15 per cent on all loan-to-value ranges in 2003. Economists and policy-makers have been closely watching Canada’s housing market for signs of trouble in recent months. The housing market has been cited as a key risk to the economy. Sales have dropped on a month-over-month basis for five consecutive months, according to the Canadian Real Estate Association. The rate of housing starts also slowed in January, compared with December, coming in at a seasonally adjusted annual rate of 180,248, down from 187,144 in last month of 2013.