The Crown corporation, The Canadian Mortgage and Housing Corporation (CMHC) is responsible for controlling the majority of the mortgage default insurance market in Canada. Within the next few weeks, the CMHC will be raising insurance premiums for homebuyers again, bringing premiums to their third raise in the last few years.
Starting in March buyers will now be paying a bit more per month to insure their mortgages. These insurance fees are mandatory to most buyers in the market, including the Niagara real estate market.
What are these premiums?
These premiums apply, by law, to buyers who put down less than 20% of the purchase price. This is a fee that is paid by borrowers so that if they default on their loans the lenders aren’t on the hook for the rest, and the insurance payout will cover it.
These rates are based on the amount borrowers are getting versus the size of their down payments. Currently, the CMHC charges 3.6% to insure a mortgage. Starting on March 17, 2017, the CMHC will charge 4% for insurance on a loan.
Impact on the market
The changes to the market aren’t expected to have a large impact on the market. While every Canadian with less than 20% of their loan as a down payment will be impacted, the premiums will be added on to the mortgage and paid off over the entire life of the mortgage.
These changes will only affect borrowers who submit mortgage applications as of March 17. If the application was received before that date, or if the mortgage is already in place, these changes will not have any effect.
How does it work?
This system is a loan-to-value ratio of a mortgage. The size of the increase for the insurance will depend on this ratio. There will be a difference in increase between someone who paid a 5-9.999% down payment on their home (their increase will be an expected $6.59), and someone who paid a 10-14.99% down payment on their home (an expected increase of $11.52 per month).
With these increases, the CMHC seems to be spreading the increases more evenly across various types of loans. Since it’s spread out over the life of the mortgage the payment increases will not be dramatic. When averaged out, Canadians will only be paying about $5 more a month to insure their mortgages.
