The change will only apply to mortgages underwritten after May 1, 2014 and it will apply to all homeowner business from that day forward as a result of increasing capital targets. Premiums will rise about 15 per cent, according to CMHC, though it isn’t expected to have a major effect on the housing market.
“In 2013 the average CMHC insured loan at 95 per cent loan to value ratio was $248,000; using these figures a higher premium will result in an increase of approximately $5 to the monthly mortgage payment for the average Canadian homebuyer,” Peter De Barros, at CMHC ‘s executive director of communications said during the media conference call. “This is based on a five-year term using current mortgage rates and 25 year amortization. The premium increase is not expected to have a material impact on the housing market.”
CMHC also expressed its plans to make an announcement about its premiums – which are reviewed each year – in Q1 of every year going forward. The Crown Corporation has made a number of changes to its premiums; though this hike is the first increase since decreases between 2002/2003 and 2005/2006.
The increase was not a department of finance initiative, according to CMHC.
“Not in response to anything in particular although, certainly, the international and Canadian regulatory guidelines over the past years have trended to higher capital holding levels for mortgage insurers and obviously we are no exception to that,” Brian Nash, chief financial officer of CMHC told reporters.
It remains to be seen whether Canada’s two other insurers, Canada Guaranty and Genworth
“I can’t comment on what they might do,” Steven Mennill, CMHC’s vice-president, insurance operations told reporters.
CMHC is increasing its mortgage insurance premiums for homeowners and 1-4 unit rental properties effective May 1, 2014.