By Brenda Bouw
New homebuyers that need mortgage insurance before they can purchase that dream home will fork over more starting this spring.
The Canada Mortgage and Housing Corp. (CMHC) said Friday it’s raising mortgage loan insurance premiums by an average of about 15 per cent starting May 1. The Crown Corporation said the impact is an extra $5 per month for the average homebuyer. (That’s based on a mortgage of about $248,000, which if you’re buying a home in Vancouver or Toronto, is a dream in itself.)
“This is not expected to have a material impact on the housing market,” CMHC stated.
The changes will be for new mortgage insurance policies, with no impact on existing ones. It applies to owner occupied, self-employed and rental properties with one-to-four units.
CMHC says the change comes following an annual review of its insurance products and capital requirements.
Steven Mennill, CMHC’s vice-president, insurance operations, said the changes are being made to match the corporation’s higher capital targets
“CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system,” he stated.
While CMHC is positioning it as a way to add cushion to its accounts, it’s also viewed as the latest measure by policymakers to cool Canada’s surprisingly strong housing market.
Finance Minister Jim Flaherty tightened mortgage rules four times in as many years until mid-2012 to try to prevent a U.S.-style housing crash.
Today, the Bank of Canada is calling for what it and economists are calling a “soft landing” in the Canadian housing market, while more pessimistic economists around the world say the pictures is more troublesome.
Canada’s housing market was sluggish at this time last year but picked up steam in the spring through to the fall, defying expectations.
Economists say part of the pickup, particularly in late summer and early fall last year, was from buyers with pre-approved mortgages jumping in ahead of rate increases being imposed by most banks.
The market has since slowed. The Canadian Real Estate Association says national home sales fell for the fifth-straight month in January. Still, the national average sale price rose 9.5 per cent year-over-year.
CMHC’s new mortgage insurance changes aren’t expected to have a huge impact on buyers that put down larger down payments, but could be a tighter squeeze for those with less up front.
On the low end, for loans up to and including 65 per cent, the premium will rise to 0.6 per cent from 0.5 per cent. On the high end, for loans up to and including 95 per cent the premium will rise to 3.35 per cent from 2.75 per cent.
For a $450,000 loan, the premium on a 95 per cent loan-to-value ratio will rise to $14,175 up from $12,375, according to CMHC. That’s an extra $8.98 per month.
Mortgage default insurance is required for buyers that make a down payment of less than 20 per cent.
CMHC is the largest of three mortgage insurers in the country. The others include private sector firms Genworth Canada and Canada Guaranty.
