People applying to CMHC for mortgage default insurance can expect to pay significantly more after the company’s announcement that they will be raising premiums starting May 1.
“The higher premiums reflect CMHC’s higher capital targets,” said Steven Mennill, CMHC’s vice-president of insurance operations, in a release. “CMHC’s capital holdings reduce Canadian taxpayers’ exposure to the housing market and contribute to the long term stability of the financial system.”
The increase should impact homeowners to the tune of about $5/month, and raise approximately $175 million for the federal agency.
Prospective Canadian homeowners must purchase default insurance if paying less than 20% as a down payment and are borrowing from a major financial institution. Banks require this because it covers them in the event of a default and is ultimately backed by the Canadian Government. Other private lenders who also offer the same service announced that they will follow suit with CMHC, raising their premiums across the board. In the case of private lender Genworth Canada, by as much as 15%.
In terms of the monthly premium, the increase isn’t really much of a hit. However when factored into closing costs, which are already fairly expensive and hard on buyers, it can be a significant increase.
The question will be whether the announced increase will cause an uptick in activity by buyers who want to get their application in ahead of May 1. Since the change goes by application date and not by the closing date, buyers will have the opportunity to avoid the new rates right up until May 1.