CMHC mortgage insurance gets more expensive today

Will increase the price of homes for buyers making down payments of less than 20%

By Solomon Israel, CBC News Posted: Mar 17, 2017 10:42 AM ET Last Updated: Mar 17, 2017 1:39 PM ET

Starting today, premiums on mortgage insurance from Canada Mortgage Housing Corp. go up across the country.

CMHC says its average client will pay about $5 more per month.

Mortgage insurance is required for homebuyers making a down payment of less than 20 per cent. The price of that insurance is based on the price of the home, which varies across Canada as calculations by mortgage-comparison website Ratehub.ca show.

For example, a homebuyer in Halifax, where the average home price is $279,362, would pay $4.71 more per month under CMHC’s new premiums.​ That’s an increase of $1,413 over the life of a 25-year mortgage.

In Vancouver, however, where the average price of a home has ballooned to $995,583, the new mortgage insurance premiums would cost $16.35 more each month — or $4,904 over 25 years.

In both examples, Ratehub assumes buyers are making the minimum down payment required on a five-year, fixed-rate mortgage of 2.42 per cent amortized over 25 years. Mortgage insurance payments can also be made as a lump sum, rather than monthly payments.

Premium hikes follow new capital requirements

CMHC announced the premium increase in January, after the Office of the Superintendent of Financial Institutions (OSFI) implemented new rules requiring mortgage insurers to have more capital on hand as a hedge against potential losses. CMHC is a crown corporation, but OSFI’s new rules also apply to mortgage insurance companies, like Canada Guaranty and Genworth.

“We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,” said CMHC senior vice-president Steven Mennill in January.

According to CMHC, the average insured mortgage was worth about $245,000 in the first nine months of 2016, with an average down payment of about eight per cent. The average gross debt service ratio (also known as the gross debt-to-income ratio, which measures the monthly cost of housing against monthly income) was 25.6 per cent.

CMHC recommends that monthly housing costs be no more than 32 per cent of average gross monthly income.