Call by rivals for CMHC to hike premiums: To what effect?

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Globe & Mail sources report that Genworth and Canada Guaranty are encouraging the Canadian government to raise CMHC premiums. What effect will this have on clients and the brokering industry as a whole? Not much, says one player.

“If the premiums were to increase I don’t think it would change the client’s mind about getting a mortgage,” Sundeep Saggu of Verico the Mortgage Wizards told MortgageBrokerNews.ca. “If the premiums are raised they won’t really deter buyers because it gets tacked onto the mortgage and the premium is spread out.”

If CMHC were to increase its premiums, Canada’s two private lenders would likely follow suit as they essentially use the Crown Corporations as a benchmark. The result could price certain buyers out of the market and effectively pump the brakes on the housing industry.

Not necessarily the case, according to Saggu.

Because a mortgage, and the necessary mortgage insurance, is paid out over such a long term – often over a period of 25 years – clients won’t fully grasp the repercussions of having to pay an extra $10,000 or so over the period, argues Saggu.

“The implication of the premium doesn’t get properly translated to clients,” he said. “People are still going to want to move into their home – an extra half per cent on the premium won’t make a dent in their pocket.”

Though he does recognize the opportunity it would open up for mortgage brokers to take on more of an advisory role for their clients, by laying out exactly how much is paid for insurance over the term. And if taking out mortgage insurance is the right fit for them.

“If they do increase it will encourage brokers to take a different path and become more of a planner; It will take more planning than just sticking clients with a mortgage to get them into a house,” Saggu said. “It’s like anything: If bottled water was raised to $2.00 people would still buy it if they understand why they want it.”

  • John Dearin on 2013-12-04 9:13:50 AM

    I guess this answers the question "where will insurance rates go if CMHC was out of the game". UP...way up. I won't be selling my shares in MIC anytime soon!!

  • Alphonse Negro on 2013-12-04 9:16:45 AM

    Unbelieve if you are to think that Canadians would not be affected by a rise in premiums..

    I have to hold myself! First time buyers need a break and a big one that will allow them to get into their first home and transition into a new home..

    Mr Saggu rethink your position.. What everyone in North America does is leverage a Canadian or Americains debt load over time...

    The insurers are doing a much better job at risk analysis than ever before so hopefully this translates into quality as sets on their books.

    If anything Canadians should now benefit with reduced premiums. I am curious to see what the industries comments will be on this..

    This my personal take on this issue.

  • Ron Miller on 2013-12-04 11:21:39 AM

    Why not just raise premiums on high risk people? Such as past bankruptcies and low credit scores. A 650 or 800 credit score currently pay the same. Who is the higher risk? Stated income and rentals are a higher rate.

    If you have speeding tickets and accidents on your driving record you pay more for car insurance. Why not treat mortgage insurance the same? 800 credit score gets a discount, 680 pays the regular rate and the 650 score pays a higher premium.

  • gemma on 2013-12-04 1:23:56 PM

    Rates were higher in the 90s and consumers still purchased with Mortgage Default ins.

  • Bryan Jaskolka on 2013-12-07 4:48:29 AM

    I agree that a rise in premiums would cause a significant pinch to homebuyers, especially first-timers that are already trying desperately to get into a market that's making it near impossible for them. And this the way things are done in the business world? You want to raise your prices and so you go to your competition and ask them to do it first?

  • Dale on 2013-12-09 9:54:44 AM

    So lets ask our Finance Minister? CMHC is a "very profitable" company for the government.
    Our minister and the B of C talk of personal debt rising to very high levels. Why is it that "THEY" the government want to put us further in debt? Seems contradictory, plus with limited competition...which the government states they want to see...the other two insurers will likely follow immediately on the heels of CMHC and raise to increase profit margins.

  • Jack on 2013-12-09 6:09:21 PM

    Premiums are going up for no other reason but that CMHC suspects there is more Risk today than in the past...(although CMHC continues to predict continued growth?) But if you look back to when the Premiums began falling, it was because of continuing increased values in homes...and the trends continued further as the products became more consumer centric, rates dropped & values continued to go up. Today we have seen about 5 years of major changes by lenders & Insurers (thank you Mr. Flaherty & Co), which has resulted in a much more difficult task for consumers to qualify. A smaller qualified Buyers pool has been created, hence a major correction in values is likely expected by the Insurers, as well as increase in defaults & bankos and as such an increase in premiums is being implemented to combat the potential hit to their bottom line. So if the consumer will get a break, it will come in the future by way of falling prices in the housing market...or so I suspect the INSURERS are expecting, but not publicly predicting.

  • Stephanie Lopushinsky on 2013-12-15 11:24:22 AM

    I think it is time for the government to make these fees tax deferred for the home buyer.
    The consumer does care and they are making more informed decisions. With rates so low and taxes so high many consumers are making the decision to purchase the rrsp and apply the refund rather than putting more down. They are leveraging and using cmch. Interesting!
    Mortgage Broker - Verico

  • Walid on 2013-12-16 6:54:28 AM

    Well, this is probably to reflect the risk of making mortgages. Instead of refusing the mortgage, for the right premium they will do the deal. That will penalize the good borrower they are just diluting the risk which is unfair.
    Maybe the premium should be risk based.

    It can depend on several factors:
    1- The type of property (owner occupied, rental condo, size of living area, number of bedrooms, age of property...)
    2- The services in the area (municipal services, proximity of services)
    3- Credit score of borrowers.
    4- TDS, GDS of borrowers

    Just my 2 cents

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