Data on the new premiums and what it means
On January 17, 2017, the Canadian Mortgage and Housing Corporation announced an increase in premium rates. These increases will likely affect first-time homebuyers.
First-time buyers typically offer 5-20% down payments, which requires mortgage default insurance.
Unfortunately, these changes arrive in a time when stress testing lowers ambitions for new buyers to access mortgage financing. Increasing mortgage insurance premiums may add yet another roadblock to the goals of new homebuyers.
Effective mid-March of this year(precisely March 17th), premium rates will reflect as follows:
Source: CMHC via additional calculations by u/fxlbtm (Reddit)
** Old premium: refers to premium rates verified and implemented before March 17th, 2017
Steve Mennill, Senior Vice President, Insurance notes that the premium will add an extra $5 a month in costs to the average premium/CMHC-insured homebuyer. Mennill also states that “We [the CMHC] do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home.”
Changes in the CMHC’s mortgage insurance premiums reflect new capital requirements introduced on January 1st. These requirements require mortgage insurers to hold more capital in mortgage financing. Requiring more capital from mortgage insurers protects lenders against potential losses and maintains economic stability.
For current homeowners
This rise in mortgage insurance premium payments doesn’t affect currently-insured homeowners.
How are premiums calculated?
Much like the current premiums, after March 16th, premiums will be calculated based on loan-to-value ratios on the mortgage being insured. You can pay this amount in a lump sum or have it added to the mortgage principal. The second option spreads out your premium, repaid over the life of the mortgage, as part of regular mortgage payments.
According to CMHC figures, the following chart illustrates a typical breakdown of premium payments under the new rates.
What does a mortgage insurance premium increase look like in a real-life scenario?
In December 2016, TREB noted $730,472 as the annual average house sales price in Toronto.
Let’s say a buyer put down a near-minimum down payment of 8% (or $58,438) on the house value above.
- The CMHC premium at the current rate is 3.6% of the mortgage amount (which is the down payment minus the purchase price)
- The mortgage ($672,034) at the current CMHC rates results in a CMHC premium total of $24,193.
On and after March 17th, 2017
For the same house purchased on or after March 17th:
- The CMHC premium rate will rise to 4%
- The total premium cost at the new 4% rate equates to $26,881, which is an increase of $2,688.
- The new premium rate adds around $13-14 a month to the monthly mortgage payment.
What does this mean for me?
If you’re currently buying a home
If you’re currently buying property and your lender requires you to pay a monthly CMHC premium, get all necessary documents submitted to them well before the 17th of March.
Failure to do so will require you to reapply and re-qualify at the new premium rates.
If you’ve closed on an offer
You’ll pay the current rates as long as you submitted your mortgage loan insurance request documents before March 17th.
If you’re getting a second mortgage/refinancing
The new premium rules only apply to new/first-time buyers.