The Canada Mortgage and Housing Corporation (CMHC) is increasing its mortgage loan insurance premiums. The new mortgage loan insurance premium increase will come into effect on St. Patrick's Day, March 17th, 2017.
"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."
The increase does not affect homeowners who already have a CMHC-insured mortgage.
The CMHC: Who Are They?
The Canada Mortgage and Housing Corporation is a government-owned corporation established back in 1946. For consumers, they are probably best known as one of the three providers of mortgage loan insurance; the other two are Genworth Canada and Canada Guaranty.
What Is Mortgage Loan Insurance and Who Needs It?
Lenders typically require mortgage loan insurance when a buyer does not have at least 20 per cent saved up for a down payment. The insurance covers the lender (not the homebuyer) in case the homeowner defaults on their mortgage. For buyers it means that they can purchase a home with as little as 5 per cent down and still get mortgage rates comparable to homebuyers with a 20 per cent down payment.
Did you know? Mortgage loan insurance is different than mortgage life insurance. Mortgage loan insurance protects the lender if you default on your loan, while mortgage life insurance pays the balance of your mortgage if a person listed on the mortgage dies. Like mortgage loan insurance, a lender may also require you to have life insurance, but you don't have to get mortgage life insurance specifically, you can look into other life insurance options that may better suit your lifestyle and family's needs.
Will Genworth Canada and Canada Guaranty Follow Suit?
Genworth Canada has already indicated that they'll be following CMHC's lead, and it's expected that Canada Guaranty will as well.
How Much Is the CMHC Increase?
How much the increase in premiums will affect you will depend on how much of a down payment you have been able to save up and the size of the mortgage loan you take out to purchase your property. However, if your down payment is:
- 5 per cent the premium will increase from 3.6 per cent to 4.0 per cent
- 10 per cent the premium will go from 2.4 per cent to 3.1 per cent
- 15 per cent the premium will increase from 1.8 per cent to 2.8 per cent
The following are the examples, in dollars and cents, provided by the CMHC in their news release announcing the changes. The examples are based on a 5-year term at 2.94 per cent and a 25-year amortization period.
| 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 |
| 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 |
| 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 |
What Does This Mean to the Typical Canadian Homeowner?
Even though the lender pays the premiums for mortgage loan insurance, the cost is passed onto the homebuyer. It is typically added to the mortgage principal and amortized over the life of the mortgage as part of the homeowner's regular mortgage payments. The end result, is that Canadians will pay more each month when they go to make their mortgage payments, making it even more important to try to pay off your home mortgage sooner.
