CMHC insurance increases not as "insignificant' as believed

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The Canada Mortgage and Housing Corp. announced it will increase insurance premiums for those homeowners with less than 10 per cent down and players expect the move to impact one type of client in particular.

“CMHC completed a detailed review of its mortgage loan insurance premiums and examined the performance of the various sub-segments of its portfolio,” said Steven Mennill, CMHC’s senior vice president of insurance. “The premium increase for homebuyers with less than a 10 per cent down payment reflects CMHC’s target capital requirements which were increased in mid-2014.”

This is the second such move in two years, as CMHC hiked its premiums from 2.75 per cent to 3.15 per cent last year.

Effective June 1, the insurance premium will rise 45 basis points to 3.6 per cent for those mortgages with less than a 10 per cent down payment. The housing authority said the move, announced late last week, will only add about $5 per monthly payment.

As such, CHMC said it does not expect the increase to have a material impact on the housing market.

But that is not a sentiment that’s shared across the country.

“It most certainly will; especially first-time homebuyers,” says Ron Hollett, an agent in Dartmouth, N.S. “When it’s your first time buying a home, you’re trying to save every dollar and then there are more fees.”

Hollett says the increased insurance rate will then have a domino effect on the market, making it more difficult for homeowners to sell and move up.

For now, though, he’s telling his clients to work hard to make the down-payment cut-off and realize the benefits of homeownership.

“If they can do it, go without the CMHC fees,” he says. “See if they can get money from another source, like family. Never the less, we’ll have to work with (the fee increases).”
  • Omer Quenneville on 2015-04-06 12:13:39 PM

    More should be done to help those high-risk buyers into the market instead of making it harder. We either help people get into homes now or we will pay later when they retire without the benefit of a home to aid in their retirement.

  • Old Broker on 2015-04-06 12:20:25 PM

    If a client is that tight and cannot afford an extra few dollars a month for their mortgage why are they purchasing. Gas prices will certainly eat up more than that every month. How about one less pack of cigarettes or 2 4 of beer every month. Let's get real about the complaints here guys. The reply to put more down payment makes no sense. Where is the money to come from if $5 month affects a purchase so drastically. Time for a reality check.

  • Omer Quenneville on 2015-04-06 12:26:52 PM

    Its not the $5, it is another $5 and so on and so on. Do you now realize how tight they have shut the door on those that need housing opportunities most while keeping the door open for speculators and investors. Home ownership should be treated more like a right instead of a privilege. And for you to imply that the low end market is full of smokers and drinkers is just so wrong. Pay now or pay later... think about it.

  • GOM on 2015-04-06 12:38:25 PM

    These mortgages are backstopped by the taxpayer. If there is a risk there has to be a cost to that risk. Better a well funded CMHC then to find that they drop 5 percent down payments all together.

  • Kevin R on 2015-04-06 12:41:51 PM

    The Premium is added to the mortgage, how is that going to affect the ability of a first time home buyer to purchasing a home. The Fed has identified the amount of risk in insuring 95% mortgages in this "softer" real estate industry (it is not a bubble by the way). I would rather see this than the Feds changing the minimum down payment requirement to 10% period. Omer, you need to guard against culitvating an entitlement mindset to home ownership. This isnt a pay me now or later thing. If they did it your way, the would still be paying now in the form of default deficiency claims.

  • steve on 2015-04-06 1:04:48 PM

    Government has made billions off this successful program and is milking it. You can talk about risk, $5 extra, default rates etc, but at the end of the day... where did the money go?

  • Omer Quenneville on 2015-04-06 1:05:51 PM

    It works in Singapore... One of the lowest tax rates in world. Its not working here and we are one of the highest tax rates in the world. Teach to fish now or feed them later. Its very basic really. We have lost touch with reality.

  • CC on 2015-04-06 1:07:28 PM

    I see this increase as just another money grab. Like really how many insured mortgages have we seen go into default in the past 4 years.

  • Davo on 2015-04-06 1:36:06 PM


    Have defaults on 5 % down mortgages gone up or is there any indication that they are about to go up ? If not, the increase is just a government tax / money grab.

    Our mortgage system is a wonderful thing and at the center of it is insuring mortgages. I have no problem with that as it has worked wonderfully for decades.

    What I do have a problem with is increasing insurance fees without ANY evidence that the risks have increased.

  • Ad Lakhanpal, Mort. Alliance on 2015-04-06 1:44:36 PM

    I agree with CC that it looks like another money grab. It is not a question of $5 per month. The increase of 40 points added $1600 to a 400k mortgage last year. Now increase of 45 points will add another $1800 to the cost of purchase. Can CMHC support it by publishing data on increased default incidents to justify such increases? I doubt it!

  • Shaun Serafini (@mortgagepro10) on 2015-04-06 3:02:08 PM

    What is lost in the $5 per month analogy is the erosion of a homebuyer's initial equity position brought by the higher premium. They are now getting less than 1.5% equity in a home despite coming up with 5% downpayment (not a small feat in itself these days). This is almost a full percentage of equity loss from the last wave of premium increases.

    The baffling part is that when a person gets into trouble with a mortgage, equity is usually the primary means of navigating out of trouble. They will now be further behind the mark in terms of equity from the outset and CMHC doesn't seem to care to much about that fact.

    In a softer real estate market or one experiencing slow, steady growth, that equity position will serve as a thick pair of handcuffs should customer ever have to change course in life and sell property early. Is it a significant difference in the overall equity position vs present -- not really, but the point is buyers with less than 10% certainly will be a bit deeper come June 1 than they already are.

  • Erik on 2015-04-06 3:03:14 PM

    On a $200,000 home, the increase equates over 5 years they require it be paid off in, to another $1000. I don't know where they are getting an extra $5 per month, doing the math, would be on a mortgage of about $80,000... who is buying an $80,000 house? This sounds like a shady car salesman trying to add the premium paint protection for a small fee. They're outright lying about cost, to hide the fact that they are just stealing money from us. If this were a fuel tax the backlash would be terrifying.

  • MikeJ on 2015-04-06 4:41:52 PM

    "Omer Quenneville on 06/04/2015 12:13:39 PM
    More should be done to help those high-risk buyers into the market instead of making it harder."

    This is totally backwards. They are high-risk buyers and they are bidding up properties well beyond any sane level of affordability.

    More should be done to prevent high-risk buyers from taking on $500,000 to $999,999 mortgages that will likely cause them financial, personal and social ruin. Beyond ruining their own lives, the general house horniness we are seeing in Vancouver and Toronto will cause so many home owners to take a major financial haircut - the repercussions of which will reverberate throughout the economy.

  • David on 2015-04-06 4:43:05 PM

    sept 11, 2003 - "New Agency Proposed to Oversee Freddie Mac and Fannie Mae" - similar complaints as here "make it harder for poor people to have house"... reality is you probably shouldn't be buying a house if this is an issue. interest rates will likely go up, income can go down, housing prices can go down... end result is people go bankrupt and drag government along with them.

  • Homeowner on 2015-04-06 4:51:49 PM

    To those who say home ownership should be a right, smh. The feds inflated this bubble to the point of lunacy with cheap money and lax banking policy, they are trying to reign it in by making structural changes in lending and CMHC rules, ie. no more 40 year amortizations, no insurance for homes valued over 1 million dollars etc...

    If you think home ownership is a right you are treading a dangerous path, look back 7 years and to the south and you will see where that got us.

    A roof over your head, that you don't necessarily own, should be a human right, owning a 3500 sq/ft home in Vaughan is not a right.

    @GOM
    "These mortgages are backstopped by the taxpayer. If there is a risk there has to be a cost to that risk. Better a well funded CMHC then to find that they drop 5 percent down payments all together."

    This guy/girl knows whats up, sort of. All of the price increases in real estate in the last 10 years has been the result of unrealistically cheap money. Why should I or anyone else have to pay for someone who doesn't understand the effects of interest rates. If rates return to historic norms in the next few years, many people who purchased with 5% down-payments could be in serious trouble.

  • Homeowner on 2015-04-06 4:51:56 PM

    To those who say home ownership should be a right, smh. The feds inflated this bubble to the point of lunacy with cheap money and lax banking policy, they are trying to reign it in by making structural changes in lending and CMHC rules, ie. no more 40 year amortizations, no insurance for homes valued over 1 million dollars etc...

    If you think home ownership is a right you are treading a dangerous path, look back 7 years and to the south and you will see where that got us.

    A roof over your head, that you don't necessarily own, should be a human right, owning a 3500 sq/ft home in Vaughan is not a right.

    @GOM
    "These mortgages are backstopped by the taxpayer. If there is a risk there has to be a cost to that risk. Better a well funded CMHC then to find that they drop 5 percent down payments all together."

    This guy/girl knows whats up, sort of. All of the price increases in real estate in the last 10 years has been the result of unrealistically cheap money. Why should I or anyone else have to pay for someone who doesn't understand the effects of interest rates. If rates return to historic norms in the next few years, many people who purchased with 5% down-payments could be in serious trouble.

  • Homeowner on 2015-04-06 4:51:57 PM

    To those who say home ownership should be a right, smh. The feds inflated this bubble to the point of lunacy with cheap money and lax banking policy, they are trying to reign it in by making structural changes in lending and CMHC rules, ie. no more 40 year amortizations, no insurance for homes valued over 1 million dollars etc...

    If you think home ownership is a right you are treading a dangerous path, look back 7 years and to the south and you will see where that got us.

    A roof over your head, that you don't necessarily own, should be a human right, owning a 3500 sq/ft home in Vaughan is not a right.

    @GOM
    "These mortgages are backstopped by the taxpayer. If there is a risk there has to be a cost to that risk. Better a well funded CMHC then to find that they drop 5 percent down payments all together."

    This guy/girl knows whats up, sort of. All of the price increases in real estate in the last 10 years has been the result of unrealistically cheap money. Why should I or anyone else have to pay for someone who doesn't understand the effects of interest rates. If rates return to historic norms in the next few years, many people who purchased with 5% down-payments could be in serious trouble.

  • Erik on 2015-04-06 5:23:49 PM

    Didn't the banks used to refuse these mortgages to people? This used to be the way of things... if you can't afford it don't buy it. I'm in the process of buying my first house now, I can easily afford it, I just don't want to plop down so much up front, I haven't had the luxury of years of building equity to borrow against. I am certainly not a high risk loan, my service to income ratio is exeptionally good, though the CMHC has taken thousands from me, and want more. What gain do we get when these coffers are full?

  • MikeJ on 2015-04-06 5:36:13 PM

    "Erik on 06/04/2015 5:23:49 PM
    Didn't the banks used to refuse these mortgages to people? This used to be the way of things... if you can't afford it don't buy it. I'm in the process of buying my first house now, I can easily afford it, I just don't want to plop down so much up front, I haven't had the luxury of years of building equity to borrow against. I am certainly not a high risk loan, my service to income ratio is exeptionally good, though the CMHC has taken thousands from me, and want more. What gain do we get when these coffers are full?"

    Everyone can afford their mortgage until they can't. Since you can easily afford your mortgage you won't miss the extra $5 a month.

    As for what we get - liabilities are paid out premiums. CMHC either is experiencing or is expecting to see higher numbers of claims in the future and is trying to maintain sufficient capital reserves/ensure it can pay out claims.

    Claims cannot sustainably exceed premiums + investment returns on capital. If they only insured people likely to default, they wouldn't be able to provide coverage. Insurance 101.

  • Michael on 2015-04-06 7:11:52 PM

    This is all fraud. This government does not understand the reality. We are paying TAX to international criminals, instead of improving our standards of living.

    Read below.

    http://www.huffingtonpost.ca/2014/08/27/foreign-real-estate-ownership-canada_n_5718705.html

    https://www.facebook.com/pages/Your-Landlord-is-a-Criminal/900075833347633?ref=aymt_homepage_panel

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