Garry Marr | January 17, 2017 5:59 PM ET
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The increase in premiums depends on the downpayment — they are rising more dramatically for loans with higher downpayments — but the premium for consumers with a loan-to-value ratio up to and including 95 per cent, will rise to four per cent on March 17 from the current 3.6 per cent.
“The changes were necessary because the capital regime for mortgage insurers as put in place by the regulator has changed effective Jan. 1, 2017,” said Steven Mennill, senior vice-president, insurance with CMHC, referring to changes brought in by the Office of the Superintendent of Financial Institutions. “It places different requirements on mortgage insurers with respect to the capital that we have to hold.”
The country’s two private insurers, Genworth Financial and Canada Guaranty, have often matched CMHC increases but neither could be reached for comment Tuesday.
Canadians with less than a 20 per cent down payment must get mortgage default insurance but CMHC says it is also increasing rates for people with what is referred to as a low-ratio mortgage. In those cases, to mitigate risk, the banks often seek out and pay the insurance for low-ratio loans.
For loan-to-value ratios of up to and including 65 per cent, the premiums will remain at .60 per cent. It’s in the up to and including loan-to-ratio values of 75 per cent and 80 per cent — both levels that don’t legally require insurance — that premiums are rising the fastest.
In the 75 per cent loan-to-value category, the premium jumps from .75 per cent to 1.7 per cent and from 1.25 per cent to 2.4 per cent in the 80 per cent category.
With financial institutions paying that fee, Rob McLister, founder of ratespy.com, says it is inevitable that Canadians with those larger down payments will actually see mortgage rate increases passed on by the banks while Canadians with small down payments won’t.
“This is absurd. There is no statistical evidence about why (the hikes) are justified,” he said, adding the CMHC is on an advisory panel at OSFI and would have had input into the new capital requirements that have led to the fee hikes. “What CMHC is not telling people is that its premium hikes are going to jack up rates (again) on mortgages with 20 per cent to 35 per cent equity. I’m seeing up to 50 basis point spreads between lower risk low-ratio mortgages and higher risk five per cent down mortgages. The whole mortgage market has been turned on its head.”
CMHC said for the average homebuyer in its portfolio the higher premium will result in an increase of approximately $5 to their monthly mortgage payment. The average CMHC-insured loan is $245,000. The average down payment was eight per cent with an average gross debt service ratio of 25.6 per cent, below the 32 per cent maximum to qualify for a loan.
James Laird, a co-founder of RateHub, said he didn’t expect the changes announced to have much of an impact on the market. “Premiums will be increased for all of those Canadians with less than 20 per cent down, but these premiums are added on to the mortgage and paid off over the life of the mortgage, so the cash required on closing does not change. This change specifically will not impact the borrowing habits for the majority of high-ratio clients,” he said.
Ratehub noted that based on the recent average price of $730,472 in Toronto, with a minimum down payment of 6.6 per cent or $48,047, premiums would rise to $27,297 from $24,567 which comes to $12 per month based on an interest rate of 2.44 per cent and a 25-year amortization.