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CMHC mortgage insurance premiums increase

The Canadian Mortgage and Housing Corporation (CMHC) increased its mortgage insurance premiums on Friday.

Homebuyers who have less than a 20% down payment will pay more. The average homebuyer will see their monthly mortgage payment increase about $5, according to CMHC, which results in about $1,500 over the life of a 25 year mortgage. This is CMHC’s third rate hike in as many years.

The increase is a result of changes announced last fall that came into effect on Jan. 1. These changes require mortgage insurers to hold additional capital as a buffer against potential losses.

Steven Mennill, the senior vice-president of insurance at CMHC, stated that he does not believe that the increase will affect the housing markets. However, according to CanadianMortgageTrends.com, mortgage finance companies disagree arguing that higher premiums limit competition in the low-ratio market, and they assert that rates are already higher than they were last fall on mortgages with 80% loan to value. Rates are higher on loans that are not insured because the lender is assuming more risk than they would with a mortgage that is insured.

Two-thirds of CMHC’s business is on mortgages with a high 95% loan to value ratio; whereas, only about 4% of their transactional insurance is used for low 80% loan to value ratio mortgages according to CanadianMortgageTrends.com. 

A CMHC premium is calculated as a percentage of the total mortgage loan, and, the percentage that CMHC charges is based on the size of the down payment. For instance, the higher the percentage of mortgage loan to value of the home, then the higher the percentage used to calculate the insurance premiums. In other words, CMHC charges a lower percentage to mortgagors who have a higher percentage of down payment.

There is a plus side. CMHC will pay up to 25% premium refund when CMHC mortgage loan insurance is used to finance an energy efficient home. This includes borrowers who buy, build, or renovate to the energy efficiency standards outlined on the CMHC website at www.cmch.ca.

- Submitted by Nancy Blakely, a mortgage agent with Mortgage Diversity Group Inc. www.nancyblakely.ca