The Canada Mortgage and Housing Corporation is raising its mortgage loan insurance premiums for homebuyers who make down payments of less than 20%.
Effective May 1, 2014, the federal housing agency will charge almost 15% more to insure mortgages, which translates to premiums currently set at 0.5% to 2.75% increasing to 0.6 to 3.15%.
Essentially, an extra $5 a month can be expected for a borrower who puts 5% down or has a 95% loan-to-value (LTV) ratio, on a mortgage of $248,000. For a 25-year mortgage, this equates to a premium increase from $6,875 to $7,875. This would likely mean a $10/month bump in higher-priced housing markets such as Toronto or Vancouver.
The CMHC now controls about 70% of the mortgage default insurance market in Canada, estimated to be worth $560 billion, with the remainder of the market share going to private companies such as Genworth Canada and Canada Guaranty. Both of these firms followed the CMHC's lead with similar premium increases.
The CMHC has not raised rates since 1998 and stands to gain $150-million to $175-million in 2014 with the rate increases. For the first nine months of 2013, the CMHC earned almost $1.28-billion.
Additionally, the housing body plans to announce premiums quarterly, which may mean more increases are in store. This is in keeping with the federal government's mandate to keep housing prices in check and reduce the risk taxpayers may be taking on with respect to new mortgages. Changes such as reducing the maximum amortization periods from 40 years to 25 years and introducing a 5% minimum down payment scheme have been introduced over the past few years as a means to stabilize the Canadian housing market.