Canada's federal housing agency is hiking the cost of mortgage loan insurance for homebuyers starting March 17, as part of new regulatory requirements requiring it to hold more capital to offset risks in the country's red-hot real estate market.
Canada Mortgage and Housing Corp. said Tuesday it doesn't anticipate the increases will have a major impact on new home owners.
It expects the changes will add about $5 to a monthly mortgage payment for a homebuyer with an average CMHC-insured loan of approximately $245,000.
"We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home," Steven Mennill, CMHC's senior vice-president of insurance, said in a statement.
“Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”
James Laird, co-founder of interest rate-comparison website RateHub, says on its own, these increases are "minor" when compared with higher down payment requirements, higher qualifying interest rates and a decrease to amortization periods — changes that were recently put in place as part of an effort to cool down Canada's housing market.
But together, all these changes will no doubt leave an impact 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," Laird said.
"It's clear by the government's actions through 2016, and by this move, that they continue to be concerned about an overheating housing market. So once again, this is another move to make it more difficult to buy, which decreases demand and is attempting to slow down the appreciation of homes."
CMHC says the 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.
For instance, new homeowners who make a down payment between five to 9.99 per cent can expect an increase of $6.59 to their monthly mortgage if their loan is $350,000.
For the same loan amount, those with a 10 to 14.99 per cent down payment face an increase of $11.52 a month, while those with a down payment between 15 to 19.99 per cent will pay $16.46 more a month.
According to RateHub, the average homebuyer in Toronto, where the average home price is $730,472, can expect to pay $18 more a month for their CMHC insurance premium if they have a $550,000 mortgage with a 10 per cent down payment.
Laird says the last time the agency made changes to its insurance premiums was in June 2015, when it implemented a hike only on loans with a down payment of less than 10 per cent.
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 per cent. 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.
Last year, the federal government introduced a number of measures aimed at curbing risk in the real estate market.
Most recently, Finance Minister Bill Morneau announced that stress tests will be required for all insured mortgages to ensure that borrowers would still be able to make their mortgage payments if interest rates rise or their financial situations change.
In 2015, Ottawa raised the minimum down payment on the portion of a home worth over $500,000 to 10 per cent.
CMHC had previously predicted that home sales and the pace of new housing starts will decline this year before stabilizing in 2018.
BY THE NUMBERS: A LOOK AT HOW MUCH MORE IT WILL COST TO TAKE OUT A CMHC LOAN
Canadians taking out a CMHC-insured loan to buy a home face higher costs as of March 17. Here's a look at how the changes announced Tuesday by Canada Mortgage and Housing Corp. will affect new borrowers:
Down payment between five and 9.99 per cent:
Loan: $250,000
Increase to monthly mortgage payment: $4.70
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Loan: $450,000
Increase to monthly mortgage payment: $8.47
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Loan: $850,000
Increase to monthly mortgage payment: $15.98
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Down payment between 10 and 14.99 per cent:
Loan: $250,000
Increase to monthly mortgage payment: $8.23
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Loan: $450,000
Increase to monthly mortgage payment: $14.81
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Loan: $850,000
Increase to monthly mortgage payment: $27.98
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Down payment between 15 and 19.99 per cent:
Loan: $250,000
Increase to monthly mortgage payment: $11.75
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Loan: $450,000
Increase to monthly mortgage payment: $21.16
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Loan: $850,000
Increase to monthly mortgage payment: $39.96
