Canada Mortgage and Housing Corporation (CMHC) is increasing its homeowner mortgage loan insurance premiums effective March 17, 2017, according to a press release. For the average CMHC-insured homebuyer, the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. The changes do not impact mortgages currently insured by CMHC.
“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said Steven Mennill, senior vice-president, insurance. “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
Capital requirements are an important factor in determining mortgage insurance premiums. The changes reflect the Office of the Superintendent of Financial Institution's (OSFI's) new capital requirements that came into effect on January 1, 2016, which require mortgage insurers to hold additional capital. Capital holdings create a buffer against potential losses, helping to ensure the long term stability of the financial system.
During the first nine months of 2016, the average CMHC-insured loan was approximately $245,000. The average down payment was approximately eight per cent, and the average gross debt service ratio (GDS) was 25.6 per cent. To qualify for CMHC insurance, a homebuyer’s GDS should not exceed 32 per cent of their total monthly household income.CMHC regularly reviews its premiums and sets them at a level to cover related claims and expenses while also reflecting the regulatory capital requirements.
Premiums are calculated based on the loan-to-value ratio of the mortgage being insured. The premium can be paid in a single lump sum but more frequently is added to the mortgage principal and repaid over the life of the mortgage as part of regular mortgage payments.
Down payment between 5 per cent and 9.99 per cent
| Loan Amount | $150,000 | $250,000 | $350,000 | $450,000 | $550,000 | $850,000 |
| Increase to Monthly Mortgage Payment | $2.82 | $4.70 | $6.59 | $8.47 | $10.35 | $15.98 |
Based on a 5 year term @ 2.94 per cent and a 25 year amortization
*Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax — the sales tax cannot be added to the loan amount.
CMHC’s standard mortgage loan insurance premiums will be changing as follows:
Mortgage loan insurance helps protect lenders against mortgage default and enables consumers to purchase homes with a minimum down payment of 5 per cent with interest rates comparable to those with a 20 per cent down payment. Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20 per cent of the purchase price.
Loan-to-Value Ratio Standard Premium (Current) Standard Premium (Effective March 17, 2017) Up to and including 65% 0.60% 0.60% Up to and including 75% 0.75% 1.70% Up to and including 80% 1.25% 2.40% Up to and including 85% 1.80% 2.80% Up to and including 90% 2.40% 3.10% Up to and including 95% 3.60% 4.00% 90.01% to 95% - Non-Traditional Down Payment 3.85% 4.50%
Down payment between 10 per cent and 14.99 per cent Loan Amount $150,000 $250,000 $350,000 $450,000 $550,000 $850,000 Increase to Monthly Mortgage Payment $4.94 $8.23 $11.52 $14.81 $18.10 $27.98 Based on a 5 year term @ 2.94 per cent and a 25 year amortization
Down payment between 15 per cent and 19.99 per cent Loan Amount $150,000 $250,000 $350,000 $450,000 $550,000 $850,000 Increase to Monthly Mortgage Payment $7.06 $11.75 $16.46 $21.16 $25.86 $39.96 Based on a 5 year term @ 2.94 per cent and a 25 year amortization
CMHC’s new premium rates will be effective for new mortgage loan insurance requests submitted on or after March 17, 2017. The current mortgage loan insurance premiums will apply for applications submitted to CMHC prior to March 17, 2017, regardless of the closing date.
