Canada’s federal housing agency is hiking the cost of mortgage loan insurance for homebuyers starting March 17, as part of new regulatory requirements mandating it to hold more capital to offset risks in the country’s red-hot real estate market.
Canada Mortgage and Housing Corp. (CMHC) said on Tuesday, Jan. 17 it doesn’t anticipate the increases will have a “significant impact” on homebuyers and expects the changes will add about $5 to a monthly mortgage payment for those with an average CMHC-insured loan of approximately $245,000.
But taken together with other changes recently put in place in an effort to cool down Canada’s housing market, James Laird, co-founder of interest rate-comparison website RateHub, says the CMHC increase will have an effect on homebuyers, particularly those who will be purchasing property for the first time
“This is the latest in a long string of regulations brought down by the federal government making it more difficult to enter the housing market,” said Laird, citing higher down payment requirements, higher qualifying interest rates, and shorter amortization periods introduced last year.
CMHC says the new premium changes are calculated based on the loan-to-value ratio of the mortgage being insured. The size of the increase in rates depends on that ratio.
According to RateHub, a homebuyer in Toronto, where the average home price is $730,472, can expect to pay $20 more a month for their CMHC insurance premium if they have a $657,425 mortgage with a 10 percent down payment, based on a 25-year amortization period at a fixed five-year rate of 2.44 percent.
These current increases seem to show that this time, they’re spreading the increases more evenly across all types of loans.
Lenders typically require mortgage loan insurance when a homebuyer makes a down payment of less than 20 percent. The cost can be paid in a single lump sum, but CMHC says the amount is often added to the mortgage principal and repaid over the life of the loan.