{"id":200,"date":"2017-01-17T14:42:33","date_gmt":"2017-01-17T19:42:33","guid":{"rendered":"http:\/\/www.joshmulherin.com\/blog\/?p=200"},"modified":"2017-01-17T15:10:10","modified_gmt":"2017-01-17T20:10:10","slug":"cmhc-to-increase-mortgage-insurance-premiums","status":"publish","type":"post","link":"https:\/\/www.joshmulherin.com\/blog\/2017\/01\/17\/cmhc-to-increase-mortgage-insurance-premiums\/","title":{"rendered":"Mortgage insurance premiums on the rise for Canadians, some by more than 10%"},"content":{"rendered":"

Written by:\u00a0Garry Marr<\/a><\/span> | January 17, 2017 2:59 PM ET<\/span><\/p>\n

Canada Mortgage and Housing Corp., the Crown corporation that controls the majority of the mortgage default insurance market in the country, is raising premiums for a third time in the last couple of years and says new regulations are forcing its hand.<\/p>\n

\n

Here\u2019s how much it\u2019s going to cost you to insure your mortgage<\/h4>\n

Canadians taking out a CMHC-insured loan to buy a home face higher costs as of March 17. Here\u2019s a look at how the changes announced Tuesday by Canada Mortgage and Housing Corp. will affect new borrowers:<\/p>\n

Down payment between five and 9.99 per cent:
\nLoan: $250,000
\nIncrease to monthly mortgage payment: $4.70
\n\u2014-
\nLoan: $450,000
\nIncrease to monthly mortgage payment: $8.47
\n\u2014
\nLoan: $850,000
\nIncrease to monthly mortgage payment: $15.98
\n\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014
\nDown payment between 10 and 14.99 per cent:
\nLoan: $250,000
\nIncrease to monthly mortgage payment: $8.23
\n\u2014
\nLoan: $450,000
\nIncrease to monthly mortgage payment: $14.81
\n\u2014
\nLoan: $850,000
\nIncrease to monthly mortgage payment: $27.98
\n\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014\u2014
\nDown payment between 15 and 19.99 per cent:
\nLoan: $250,000
\nIncrease to monthly mortgage payment: $11.75
\n\u2014
\nLoan: $450,000
\nIncrease to monthly mortgage payment: $21.16
\n\u2014
\nLoan: $850,000
\nIncrease to monthly mortgage payment: $39.96
\n\u2014\u2014\u2014
\nThe figures above are provided by CMHC and are based on a five-year fixed rate term at 2.94 per cent with a 25-year amortization period.<\/em><\/p>\n<\/div>\n

The increase in premiums depends on the downpayment \u2014 they are rising more dramatically for loans with higher downpayments \u2014 but the premium for consumers with a loan-to-value ratio up to and including 95 per cent, will rise to four per cent on March 17 from the current 3.6 per cent.<\/p>\n

\u201cThe changes were necessary because the capital regime for mortgage insurers as put in place by the regulator has changed effective Jan. 1, 2017,\u201d said Steven Mennill, senior vice-president, insurance with CMHC, referring to changes brought in by the Office of the Superintendent of Financial Institutions. \u201cIt places different requirements on mortgage insurers with respect to the capital that we have to hold.\u201d<\/p>\n

The country\u2019s two private insurers, Genworth Financial and Canada Guaranty, have often matched CMHC increases but neither could be reached for comment Tuesday.<\/p>\n

Canadians with less than a 20 per cent down payment must get mortgage default insurance but CMHC says it is also increasing rates for people with what is referred to as a low-ratio mortgage. In those cases, to mitigate risk, the banks often seek out and pay the insurance for low-ratio loans.<\/p>\n

For loan-to-value ratios of up to and including 65 per cent, the premiums will remain at .60 per cent. It\u2019s in the up to and including loan-to-ratio values of 75 per cent and 80 per cent \u2014 both levels that don\u2019t legally require insurance \u2014 that premiums are rising the fastest.<\/p>\n

In the 75 per cent loan-to-value category, the premium jumps from .75 per cent to 1.7 per cent and from 1.25 per cent to 2.4 per cent in the 80 per cent category.<\/p>\n

With financial institutions paying that fee, Rob McLister, founder of ratepsy.com, says it is inevitable that Canadians with those larger down payments will actually see mortgage rate increases passed on by the banks while Canadians with small down payments won\u2019t.<\/p>\n

\u201cThis is absurd. There is no statistical evidence about why (the hikes) are justified,\u201d he said, adding the CMHC is on an advisory panel at OSFI and would have had input into the new capital requirements that have led to the fee hikes. \u201cWhat CMHC is not telling people is that its premium hikes are going to jack up rates (again) on mortgages with 20 per cent to 35 per cent equity. I\u2019m seeing up to 50 basis point spreads between lower risk low-ratio mortgages and higher risk five per cent down mortgages. The whole mortgage market has been turned on its head.\u201d<\/p>\n

<\/div>\n

CMHC said for the average homebuyer in its portfolio the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. The average CMHC-insured loan is $245,000. The average down payment was eight per cent with an average gross debt service ratio of 25.6 per cent, below the 32 per cent maximum to qualify for a loan.<\/p>\n

James Laird, a co-founder of RateHub, said he didn\u2019t expect the changes announced to have much of an impact on the market. \u201cPremiums will be increased for all of those Canadians with less than 20 per cent 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. This change specifically will not impact the borrowing habits for the majority of high-ratio clients,\u201d he said.<\/p>\n

Ratehub noted that based on the recent average price of $730,472 in Toronto, with a minimum down payment of 6.6 per cent or $48,047, premiums would rise to $27,297 from $24,567 which comes to $12 per month based on an interest rate of 2.44 per cent and a 25-year amortization.<\/p>\n

gmarr@nationalpost.com
\ntwitter.com\/dustywallet<\/p>\n","protected":false},"excerpt":{"rendered":"

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