Tuesday, January 23, 2018
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CMHC Increase in Mortgage Default Insurance

Last week the Canada Mortgage and Housing Corp (CMHC) announced an increase in its mortgage default insurance applicable to Buyers who pay less than 10% of the downpayment while purchasing a property. This increase is set to come into effect as of June 1st and does not apply to mortgages currently insured by the CMHC.

What is Mortgage Insurance?

Much like any insurance, Mortgage Insurance is this is a monetary sum that provides protection to lenders who provide money to home buyers and owners. Borrowers who put less than 20% down must pay this sum if they are borrowing from a financial institution regulated by the Bank Act. This number is determined by different constants, some of which are the value of the home, how much money is borrowed, the mortgage rate and so on.

How will Home Affordability be affected?

With CMHC raising the average Mortgage Insurance Premium by 15% as of June 1st, the rate will be 3.6% of the value of the mortgage, up from 3.15%. This, according to the CMHC amounts to about $5 on a monthly mortgage, which is a pittance. Additionally, Crown Corporation has gone as far to say,

“This is not expected to have a material impact on housing markets,”

Will Private Players follow suit?

In 2014, when CMHC upped its mortgage premium insurance from 2.75% to 3.15%, private players quickly followed suit and we have witnessed a repetition of this pattern this year because as of yesterday, Genworth  Canada announced that it will be increasing the premium for some of its mortgage insurance, starting June 1, matching that of the CMHC.

Following the same stance of the CMHC, Genworth Canada adds that higher premiums for people with small down payments won’t have a major impact on home affordability.