Earlier today, the Canada Mortgage and Housing Corporation—the crown corporation responsible for housing in Canada—announced it’s raising mortgage loan insurance premiums as of March 17, 2017.
This new increase in CMHC fees “will result in an increase of about $5 a month for the average homebuyer,” as explained in the CMHC press statement.
Steven Mennill, senior vice-president of insurance at CMHC, also said, in the news release that the corporation “doesn’t 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.”
Ratehub.ca co-founder and President of Canwise Financial, James Laird, added: “Relative to the rule changes that were implemented in late 2016 this is not a major change. Premiums will be increased for all of those Canadians with less than 20% down, but these premiums are added on to the mortgage and paid off over the life of the mortgage, so the cash required on closing does not change.” As a result, Laird predicts that this new rate increase “will not impact the borrowing habits for the majority of high ratio clients.”
To appreciate how this new increase will impact buyers, RateHub.ca offers two different scenarios using their mortgage payment calculator:
Based on the Canadian Real Estate Association’s average Toronto home price of $730,472, with a minimum down payment of 6.6% (or $48,047) the current premium is 3.60% of the mortgage amount (purchase price less down payment). For that mortgage amount of $682,425, the CMHC premium is $24,567.
With the new premium at 4.00% of mortgage amount, the CMHC premium becomes $27,297—an increase of $2,730. This translates to a mortgage payment increase of approximately $12 per month (based on today’s best rate of 2.44%, amortized over 25 years).
If that buyer has an 18% down payment on an average Toronto home priced at $730,472, the total down payment would be $131,485. At the current premium of 1.8% of the mortgage amount, that buyer is paying $10,782 in CMHC insurance.
At the new premium of 2.8% of the mortgage amount, the CMHC premium becomes $16,772—a $5,990 difference for that buyer. This translates to a mortgage payment increase of approximately $27 per month (based on today’s best rate of 2.44%, amortized over 25 years).
Is this the end of the mortgage rule changes?
This recent change, along with the change introduced in late 2016, reflect stricter new capital requirements for mortgage lenders that the Office of the Superintendent of Financial Institutions introduced at the start of the year. This new measure takes effect March 17, 2017.
Yet, in a meeting with private sector economists on January 13, 2017, Federal Finance Minister Bill Morneau said that he didn’t foresee any new measures to rein in mortgage risks in Canada. In a statement made at the Toronto event, and reported on by CBC.ca, Morneau said the federal government “continues to monitor the housing market to make sure the risks are appropriate for the market.” He added: “We don’t have any measures under consideration at this stage, but we will continue to monitor to ensure the housing market is stable and that people are protected in their important investment.”