Here’s How Much Mortgage Insurance Payments Go up Starting March 17, 2017

The Canada Mortgage and Housing Corporation (CMHC) will now charge you a few more dollars every month to insure your mortgage starting March this year. This announcement was made by CMHC in a recent press release. Therefore, the question we now face is “what does this increase mean for homeowners?”

The law states that every homeowner who puts down less than 20% of the property price must be backed by mortgage insurance. This additional fee certainly doesn’t help the homeowner, but it makes sure that the lenders aren’t on the hook in case people default on the mortgage.

Generally, CMHC charges a small fee, which is as little as 0.6% of the total mortgage value. Nevertheless, in some cases, the number can increase to 3.6%, which is almost six times more than the lowest mortgage rates. For an average CMHC insured mortgage, there would be an increase of approximately $5 to the monthly mortgage payment. 

Here is an example explaining the upcoming changes on 17 March 2017:

Property Price

Down Payment

Insurance Premium Amount

Current

Insurance Premium Amount

(After March 17, 2017)

$750,000

6.6% (required minimum)

$25,200

 

$28,000

$750,000

14%

$15,480

$18,060

$750,000

19%

$10,935

$17,010

If you have a closer look at how mortgage insurance premiums are calculated, you would find that the number depends on the mortgage amount buyers get after deducting the down payment they make. You can refer to this site's mortgage calculator.

Will Increase in Insurance Premiums Have a Negative Impact on the Buying Ability of Canadian Homeowners?

CMHC's Senior Vice-President, Insurance suggested that the increase won’t have a major impact on new homeowners stating “We do not expect the higher premiums to have a significant impact on the ability of Canadians to buy a home,”. He further stated “Overall, the changes will preserve competition in the mortgage loan insurance industry and contribute to financial stability.”

The change will only affect new mortgage applications received as of the announced date. The last time mortgage insurance premiums were hiked was 2015. The rates were increased as much as 15% for some homeowners.

Some experts suggest that this change in mortgage payment is a minor increase compared to recent mortgage rule changes announced in October 2016 mainly implemented to cool down the blazing housing market in Canada.

Experts believe that increasing mortgage insurance premium will affect Canadian first-time homebuyers in particular, but this increase is not as impactful as the requirement to make higher down payments, pay higher interest rates or agree to a decrease in amortization periods.

Some potential homebuyers may feel intimidated by the increasing number of regulations set forth by the federal government. But will these changes really make it difficult for homebuyers to enter the Canadian housing market, only time will tell.